The 401k Retirment Plan Option
Are you saving for the future? Do you know your options? A 401k retirement plan is an investment account that allows you to save money for retirement tax free. Your employer may also contribute to such a plan. When you retire, you will have to pay the taxes on your distribution or monthly payment that you receive, but you will most likely be in a lower tax bracket, which means in the long run you get to keep more of your money.
If you contribute to a 401k retirement account through your employer, and you change jobs, don't worry. Your money can go with you from job to job. If your plans change, or you want to combine this money with another investment, you can rollover your distribution to an IRA or an Income Annuity. Many employers offer some type of matching where they will help contribute to your retirement. This can help your retirement grow at a very fast rate because the amount of money that you put away for retirement is much higher.
The IRS mandated annual limits to the 401k retirement savings are $15,500 in pre-tax contributions, and $45,000 total in contributions. The limits may increase due to the rising cost of living, but only in $500 increments per year.
You may be able to take a loan from your account. Like any other loan, you must pay the money back with interest. The difference is if you adhere to the repayment rules, you will not have to worry about any taxes right away, as you would for a regular distribution. However, you will be taxed on this money twice, since the repayment will be taken from the paycheck after taxes are withheld. When you do finally and officially withdraw, you will have to pay the taxes again, because that money is then considered pretax. If you do take a loan, you must study the rules your employer has set as far a repayment terms. If you leave the company, there may be penalties or specific restrictions if payment arrangements are not set. You should contact your bank or current employer to see what options are available. Opening a 401k retirement account will help you save money for the future. In the end, it is better than a regular savings account because of the tax benefits. Find out if this option is right for you. It is almost never too late to get started. Obviously, the younger you start, the more your retirement will grow.
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