401K retirement plans obtained its title from the section related to the tax code that governs it. This investment system was introduced during the 1980s to act as a supplement to pension funds. It is a retirement savings option which is sponsored by employers.
Prior to 1980, employees were usually offered a pension fund by their employer. This type of fund was generally managed by the company of employment and a regular amount was paid to the employee during their retirement. This option may still be available to those who work in government departments or belong to the unions. The costs related to the maintenance of pension funds are what have prompted the move to 401K plans.
The option of 401K plans allows workers to save and invest a portion of their wages before it is taxed. Tax is levied when the money is withdrawn from the plan. The worker has some form of control over the investment aspect of the funds. Most of the plans spread the money across money market, bonds and stock investments. One of the most popular investment options is target-date funds. This is normally made up of a combination of bonds and stocks that are geared to become more conservative as the 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.
Another benefit is that you are able to transfer the fund from one employer to the next. You could opt to leave the amount in your past employer's fund, however, this may attract fees that could eat into your eventual payout. The alternative is to arrange for a total rollover to the fund of your new employer. This option may only be available to you if you already have another job offer before you leave 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 related to 401K retirement plans and the method of investment varies from one plan to another. You should consider your options carefully when you move from one employer to the next. Your main aim should be to hold onto as much of the funds as you are able and to find a re-investment plan that matches that of your retirement goals.
Prior to 1980, employees were usually offered a pension fund by their employer. This type of fund was generally managed by the company of employment and a regular amount was paid to the employee during their retirement. This option may still be available to those who work in government departments or belong to the unions. The costs related to the maintenance of pension funds are what have prompted the move to 401K plans.
The option of 401K plans allows workers to save and invest a portion of their wages before it is taxed. Tax is levied when the money is withdrawn from the plan. The worker has some form of control over the investment aspect of the funds. Most of the plans spread the money across money market, bonds and stock investments. One of the most popular investment options is target-date funds. This is normally made up of a combination of bonds and stocks that are geared to become more conservative as the 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.
Another benefit is that you are able to transfer the fund from one employer to the next. You could opt to leave the amount in your past employer's fund, however, this may attract fees that could eat into your eventual payout. The alternative is to arrange for a total rollover to the fund of your new employer. This option may only be available to you if you already have another job offer before you leave 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 related to 401K retirement plans and the method of investment varies from one plan to another. You should consider your options carefully when you move from one employer to the next. Your main aim should be to hold onto as much of the funds as you are able and to find a re-investment plan that matches that of your retirement goals.
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