401K Retirement Plan

If you're seeking out 401K Retirement Plan info, you're sure at the right place! This site is loaded with explanations and information on how 401k's work plus there are all kinds of tips, tricks and questions asked most often you can read over and review. We hope you find this page to be helpful and informative for you! Finding and choosing the right retirement program can be overwhelming if you don't know what to look for, so we've set this page up with as much 401 k information as we could get for you and made sure it's helpful to you. Here you go...

Why it's smart to have a 401k:

Automatic payroll deduction makes it easy to save

Saving is ultra-convenient with your 401(k) because the money comes right out of your pay before you get your paycheck. This automatic payroll deduction helps make saving your number one priority. You don't see the money, so you're not tempted to spend it!

401K Retirement Plan Tips:

Puzzling out the rules and regulations for 401(k) plans is difficult simply because every company's plan is different. The law requires that if low compensated employees do not contribute enough by the end of the plan year, then the limit is changed for highly compensated employees. Practically, this means that the employer sets a maximum percentage of gross salary in order to prevent highly compensated employees from reaching the limits. In any case, the employer chooses how much to match, how much employees may contribute, etc. Of course the IRS has the final say, so there are certain regulations that apply to all 401(k) plans.

Important Terms:

Summary Plan Description (SPD): The SPD overview of the rules and benefits of a 401(k) plan. The DOL requires the plan administrator provide a copy of the SAR to each employee participating in the plan.

Growth Fund: Funds that pursue appreciation by investing primarily in equity securities. Current income, if considered at all, is a secondary concern.

---

Important 401(k) Rules:

401k Rules Regarding Contribution:

* In 2005, the cap for individual contribution was $14,000.This number increased to $15,000 in 2006, and after 2006, the cap adjusts annually in $500 increments.
* The maximum total amount contributed to your 401k plan is the lesser of 100% compensation or $42,000.
* If you’ll be age 50 or older by the end of the year, you may make an additional “catch-up”contribution each year. The maximum “catch-up”contribution was $4,000 in 2005 and $5,000 in 2006 and goes up each year.
* For highly compensated employees (those with income in excess of $95,000 in 2005), they may not be allowed to contribute at the maximum rate in the company.
* You can only contribute money to your 401k plan by automatic payroll deduction.
* You may not get your employer’s match if you leave your employer in less than three years. However, more and more companies have began offering immediate vesting to their employees

401k Rules Regarding Loans:
Not all 401k plans allow you to borrow from your 401k plan. And if it is allowed, the most you can borrow is the lesser of 50% of your vested balance or $50,000.

* You have to repay your loan in 5 years, unless the loan isused to purchase your primary residence.
* The interest you pay on your loan is subject to double taxation---you pay the interest with after-tax money and it is subjected to taxes when you eventually withdraw it.
* When you leave your company, you may have to pay back the outstanding balance in full. Otherwise, the outstanding amount will be subject to a possible 10% early withdrawal penalty.
* If you default on your loan, the outstanding balance is also subject to a possible 10% early withdrawal penalty.

What is a 401k plan? Here Is A Quick Explanation

Employer-sponsored retirement plans are generally grouped into two major categories: defined benefit (DB) and defined contribution (DC). In a DB plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. In other words, the plan defines the benefit to be received. In its most typical form, a DB plan pays a lifetime monthly benefit to retirees who fulfill specific age and service requirements. Benefits are usually linked to the amount of service and based on final average salary. Employees can reasonably rely on a known and expected benefit level; although protection against post-separation inflation is usually limited and/or uncertain. The plan sponsor may also provide an alternative lump-sum "cash-out" of the benefit entitlement. Until relatively recent times, the DB was the dominant form of employer-sponsored retirement program.

In DC plans, the plan defines the contributions that an employer can make, not the benefit that will be received at retirement. The terminating employee receives the proceeds in a current or deferred lump sum or annuity. Since the benefit is not defined, the retirement outcomes are not known in advance.

**Disclaimer** The information on this page is as accurate as we could get it but is meant for information purpose only. It's not meant to be legal advice in which you use to make financial decisions. For any legal or financial matters, you should seek out a certified 401k or investment company or individual.

Other words associated with this page and topic would be: 401K Versus Roth Ira, annuities, or Happens To My 401K Loan