What is a 401(k)?

What exactly is a 401k ?

401k is a type retirement plan sponsored by workers or employer. 401k plan lets employers save and invest a part of their paycheck or salary before taxes are paid out. Also, The Taxes aren’t paid out until the money is withdrawn from 401k account.

For those who are about to retire in coming days, tough times are ahead. They must go ahead with some of the best available retirement plans to let the life get the wings. Federal government offers a number of retirement plans to the retirees to let them having the essence of good life. Among the other type of retirement plans available to the retirees, there are government sponsored plans, personal plans, annuities and employer sponsored plans. Government sponsored plans are offered by the government and available in the category of social Security plans.

Personal plans are most popular example of the retirement plans, where plans are designed in different type of tax treatment policies. Annuities are other plans whereas insurance company works ahead with fixed and variable annuities. Employer sponsored plans are available in two types, qualified and non-qualified retirement plans. Qualified retirement plans are offered by the federal authorities in the strict terms and regulations of Employee Retirement Income Security Act of 1974 (ERISA) requirements.

For the retirees, these innovative plans offer number of major tax benefits. These offers allow the employers to deduct annual allowable contributions for each retiree participant. All the contributions and earnings available under the scheme are tax-deferred for the users until they withdraw some amount in the growing times of the volatile markets. Now some of the taxes are easily deferred type of IRA. In contrary, the non-qualified retirement plans known as those plans that either not follow the aspects of the global investment requirements.

Defined benefit plans are company retirement plans like pension plans. In these 401k plans a retired employee obtains a sum of specific amount that comes as the part basic salary and service duration. In these kinds of retirement plans, employee and employer make the contributions as the sum of average compensation in the highest compensation amount.

Pensions are known as another kind of investment vehicle that guarantees specific amount to be paid to the retiree’s persons during the retirement. Federal government offers several pension plans to them to get the best available pension items on the deal.

Post retirement plans are designed and developed by the investment bankers, employers and government agencies to allow the retirees get the best investment benefits. These pension plans are unaffected by the volatile status of the global markets. These plans are based on the annuities and other investment instruments that come hand to hand. Professionals in the domain offer various advantages to the users in terms of security and fund advantages together. If you are going to retire in times to come, don’t take stress, you have a number of plans to secure your life in the best manner possible.

Summary

In these kinds of retirement plans, employee and employer make the contributions as the sum of average compensation in the highest compensation amount. Pensions are known as another kind of investment vehicles that guarantees specific amount to be paid to the retiree’s persons during the retirement.           

What is 401k Limits?

401k Contribution Limits – Making the Retirement Life of Employees Tension Free and Fun Filled

The very thought of retirement brings in mixed emotions like your routine daily professional life will stop; your income will stop etc. But you can make your retirement life both relaxing and fun filled if you have planned your retirement correctly. Who would not like to do things they have dream while they were too busy with their career like vacation, traveling, get together at exotic locations etc. But for all this we need to make some good savings. Participating in a 401(k) retirement plan will make your dreams real.

A  401k Retirement Plan

Before getting yourself enrolled in any retirement plan one must understand the pros and cons of the same, like if you are willing to participate in 401k plan, then you should know what is 401k plan?. A 401k retirement plan can be described as a benefit retirement plan where you set aside a part of your income which is invested to build your savings for your future. To be a part of a 401k plan you must be an employee of a company and your employer must sponsor 401k a plan. You have the liberty to opt how much of your income has to be set aside each payday. Your employer will also contribute subject to Employer. There are tax benefits for the same to the employee also. You can also choose from a list of investment options such as bonds, stocks, and money market mutual funds, allowing you to create an investment mix that reflects your comfort level with risk.

The 401kContribution Limits

The 401k limits for employees during the year of 2011 is $16500 for a traditional plan. This limit is applicable to employees whose age is below 50 years. If your age is between 50 and 59 and a half you are entitled to a catch up contribution option of an additional $5000. The contribution you make to a 401k plan is deducted from your salary before tax is deducted from your salary. Thus the amount which used to go for tax is now getting deposited as a saving for your retirement and thus is being invested and earning returns. You will have to pay taxes on this income when you make withdrawals at the time of retirement. The Employer 401kContribution Limits have been fixed up to 6 percentage of an employee’s pre tax salary.

The employer matching contribution up to 6 percent of an employee’s pre tax salary is not included in this contribution. In other words the employees who contribute the maximum amount each year will be still eligible for your employers matching contribution above and beyond the 401k limit. If you are an employee earning $200,000 then your employer pre tax contribution will be $12000.