A 401(k) is a retirement savings plan that is offered by companies to their employees. Employees can save a small percentage of money from their paychecks before taxes are deducted. 401(k) plans are beneficial in helping people save for the future.If you want to maintain your standard of living after retirement, then you need to start saving money now as part of your retirement planning. A 401(k) is just one of the effective ways through which you can do that. There are two types of 401(k); one is a defined benefit plan and the other is a defined contribution plan.
Any business can have a 401(k) plan, including proprietorships, partnerships, corporations, and self-employed individuals
The workplace can restrict employees from being eligible for the plan if they have worked for less than a year, are part-time workers, are non-US citizens or are union members
Participants of 50 years of age or older can make “catch-up” contributions of $6,000 per year
Any withdrawals before the age of 59 1/2 will have a 10% penalty tax applied to it
You can make a vesting schedule for the contributions made by the company with certain guidelines
The employer has no obligation to contribute towards an employee’s 401(k) unless the plan is considered top heavy
You may be able make all your savings and contributions online
You can invest the money that is saved in your 401(k)
There is no federal income tax applied to the money you have saved up until a distribution is made
Contribution to your 401(k) can come from employee salary reduction, the employer, or both
Want to learn more about retirement options?
Check out this video from KIMT News 3, featuring Troy Brenhaug from First Alliance Credit Union.
Most companies let you file for a 401(k) as soon as you join the company. You can increase or decrease your contributions at any time. You also need to select a beneficiary who will inherit the money when you die. If you are married, then your spouse is automatically appointed the beneficiary. It is important to work with your Human Resources department at your employer to fully understand your 401(k) options.