In order to help with saving for post-work life, employers often offer employees the election to open and put a portion of their paychecks into a 401k retirement plan. Some companies even offer to match a percentage of contributions. If a person chooses to make this election, then he should understand the rules regarding this type of account.
An employee has the opportunity to make tax deferred contributions to his 401k, should he elect to participate. Tax deferred means that he will not pay income taxes on those dollars until he withdraws them for use in paying expenses. He can elect to contribute as much or as little as he wants, based upon a percentage of his salary he determines is adequate.
Matching an employee's contributions is an incentive that many employers offer their employees for choosing to participant in this type of retirement plan. Generally a company will state that it will match a percentage of the contributions made by the individual, up to a certain percentage of his salary. For example, ABC Company may offer to match 20 percent of all contributions, up to 5 percent of a person's salary. The company's contribution will then never exceed 5 percent of the person's salary, no matter how much he puts into the account throughout the year.
The account owner is allowed to take loans from his 401k and pay it back over the course of a certain period of time, usually dependent upon the plan administrator. The Internal Revenue Service will charge a penalty for an early withdrawal, unless it is to cover the cost of college tuition, a first-time home purchase, a mortgage payment or to cover medical expenses that you will not receive any reimbursement from.
There are other potential negatives that come into play if a person elects to take a loan from his account. He may lose part of the employer's matching contribution for that year. He can also lose any returns that he stood to gain on that portion of his balance for the time it is missing from the account.
At the age of 70.5, the person must begin taking required minimum distributions from the account. This is an amount that is required by the IRS and dependent upon the person's age and the balance of the account at the end of the previous year. If the individual fails to make the withdrawal in time or does not withdraw the appropriate amount, then the IRS will impose a penalty.
To help save for retirement and possibly earn a little extra money, an individual can use a 401k retirement plan. He should make sure to understand the rules prior to choosing this type of benefit. Otherwise, it could cost him in the long run.
An employee has the opportunity to make tax deferred contributions to his 401k, should he elect to participate. Tax deferred means that he will not pay income taxes on those dollars until he withdraws them for use in paying expenses. He can elect to contribute as much or as little as he wants, based upon a percentage of his salary he determines is adequate.
Matching an employee's contributions is an incentive that many employers offer their employees for choosing to participant in this type of retirement plan. Generally a company will state that it will match a percentage of the contributions made by the individual, up to a certain percentage of his salary. For example, ABC Company may offer to match 20 percent of all contributions, up to 5 percent of a person's salary. The company's contribution will then never exceed 5 percent of the person's salary, no matter how much he puts into the account throughout the year.
The account owner is allowed to take loans from his 401k and pay it back over the course of a certain period of time, usually dependent upon the plan administrator. The Internal Revenue Service will charge a penalty for an early withdrawal, unless it is to cover the cost of college tuition, a first-time home purchase, a mortgage payment or to cover medical expenses that you will not receive any reimbursement from.
There are other potential negatives that come into play if a person elects to take a loan from his account. He may lose part of the employer's matching contribution for that year. He can also lose any returns that he stood to gain on that portion of his balance for the time it is missing from the account.
At the age of 70.5, the person must begin taking required minimum distributions from the account. This is an amount that is required by the IRS and dependent upon the person's age and the balance of the account at the end of the previous year. If the individual fails to make the withdrawal in time or does not withdraw the appropriate amount, then the IRS will impose a penalty.
To help save for retirement and possibly earn a little extra money, an individual can use a 401k retirement plan. He should make sure to understand the rules prior to choosing this type of benefit. Otherwise, it could cost him in the long run.
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Wake Financial Group, Inc can help you with your 401k retirement plan. Contact them today for more information! (http://www.wakefinancial.com)
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