The naming of 401K retirement plans is based on the relevant section of the tax code that governs the plans. The system was first introduced in the 1980s as a supplement to the already existent pension funds. It is a method of saving for retirement, which is sponsored by a worker's employer.
In the past, employees were usually offered the option to join pension funds. These were normally managed by the employer and a regular, periodic amount would be paid to the employee during their retirement years. This option may still be accessible to those who are employed by government agencies and the unions. The main reason for the move to 401K plans was the costs of maintaining pension funds.
401K plans allow workers the facility to invest a part of their earnings before taxation. Taxation is only applied upon withdrawal of the funds from the plan. The worker is able to choose the investment aspect of the money they wish to invest. Target-date funds are one of the most popular options to choose. This option comprises of a blend of bonds and stocks that normally leans toward the more conservative when the worker's retirement age is reached.
The benefits linked to 401K retirement plans are plentiful. The main advantage is the one linked to taxation. The available funds are not taxed before investment as taxes are levied on the capital gains, dividends and interest upon withdrawal of the funds. During this investment period, you are offered the benefit of compounding the gains on the account. This can make your final package quite large if you opt to invest in this type of plan at a young age.
An added benefit is that the company you work for normally contributes a certain percentage to the retirement plan. The percentages may vary, but some employers offer to match six percent of your wages to the fund.
A benefit of this type of fund is that you are able to transfer the full value from employer to employer. You could also choose to leave the invested amount in the fund of your past employer, however, this option could incur fees which would affect the final amount you receive. An alternative would be to transfer the available funds to the plan offered by your new employer. You may only be able to do this if you have another job offer prior to leaving your current employer.
Your choice of whether to arrange a rollover or not is dependent on the options available to you with the new plan you are offered. You could choose to rollover the funds to an IRA if you do not like the current available options. You also have the option to withdraw the funds already invested from your current plan. This will attract a penalty fee, as well as taxation.
The options regarding your investment options linked to 401K retirement plans are many. If you move from one employer to another, you should consider your options carefully. Your main focus should be to hang on to as much of your investment as possible and to follow a re-investment plan that is in line with your retirement goal.
In the past, employees were usually offered the option to join pension funds. These were normally managed by the employer and a regular, periodic amount would be paid to the employee during their retirement years. This option may still be accessible to those who are employed by government agencies and the unions. The main reason for the move to 401K plans was the costs of maintaining pension funds.
401K plans allow workers the facility to invest a part of their earnings before taxation. Taxation is only applied upon withdrawal of the funds from the plan. The worker is able to choose the investment aspect of the money they wish to invest. Target-date funds are one of the most popular options to choose. This option comprises of a blend of bonds and stocks that normally leans toward the more conservative when the worker's retirement age is reached.
The benefits linked to 401K retirement plans are plentiful. The main advantage is the one linked to taxation. The available funds are not taxed before investment as taxes are levied on the capital gains, dividends and interest upon withdrawal of the funds. During this investment period, you are offered the benefit of compounding the gains on the account. This can make your final package quite large if you opt to invest in this type of plan at a young age.
An added benefit is that the company you work for normally contributes a certain percentage to the retirement plan. The percentages may vary, but some employers offer to match six percent of your wages to the fund.
A benefit of this type of fund is that you are able to transfer the full value from employer to employer. You could also choose to leave the invested amount in the fund of your past employer, however, this option could incur fees which would affect the final amount you receive. An alternative would be to transfer the available funds to the plan offered by your new employer. You may only be able to do this if you have another job offer prior to leaving your current employer.
Your choice of whether to arrange a rollover or not is dependent on the options available to you with the new plan you are offered. You could choose to rollover the funds to an IRA if you do not like the current available options. You also have the option to withdraw the funds already invested from your current plan. This will attract a penalty fee, as well as taxation.
The options regarding your investment options linked to 401K retirement plans are many. If you move from one employer to another, you should consider your options carefully. Your main focus should be to hang on to as much of your investment as possible and to follow a re-investment plan that is in line with your retirement goal.
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