401k Retirement Plan
Typically, we don’t have a choice whether to
work or not. Many people are stuck in jobs they don't like
when they dream of becoming something different. Many of us
dream of what we could do with our time, if it was all ours. A
lot of those daydreams probably have us relaxing on a beach
somewhere, sipping a cocktail after a long round of golf and a
visit with the grandkids.
Unfortunately your retirement may not be
that comfortable and you may even find the years you can retire
rapidly shrinking with the rising cost of living today. This is
why making provisions while you are still working is extremely
important. One of the many options available to you is a 401k
retirement plan that can help provide you an income when you
How a 401k retirement plan works
There is a very simple principle to the way
a 401k retirement plan works, making a 401k retirement
plan very attractive as an investment vehicle for
You simply deduct a certain amount of money from your salary
and your employer also contributes a matching amount into
your 401k retirement plan. While the money is accumulating
you can choose how you would like to have it invested within
the options available in the 401k retirement account.
There are a few options available in a 401k
retirement plan such as:
Some companies allow employees to invest in
company stock in their 401k retirement plan as well. Generally
stock funds give the best performance to the individual who
chooses to invest with caution.
Tax Considerations of 401k retirement
The reason a 401k retirement plan is so
attractive is the fact that while the funds are accumulating,
the money in a 401k retirement plan is non-taxable. You do not
have to pay taxes on these retirement account savings.
Because you can choose to contribute to your 401k retirement
plan on your salary pre-tax, you pay a lower income tax rate.
However there are limits as to how much money you can
contribute pre-tax to your 401k retirement plan annuall, just
like there are limits to contributing to individual retirement
There are also benefits from
contributing funds from net pay as money in your 401k
retirement plan that is contributed after taxes and is not
taxable. Contributing to investment retirement
account in this manner does not help out an employee’s
present tax situation, but it does however help in the future.
A 401k retirement plan can grow considerably over the average
working life of any employee and can provide comfortably well
into old age and therefore this is certainly an investment plan
worth looking into.