401-(K) - A Ladder to Financial Freedom!
401 (K) is actually a qualified retirement savings Program, established and sponsored by the Companies in America, which helps the eligible staff to choose wage deferral contributions, prior to taxes are applied for. Put simply it gives the employees a plan to save and commit section of their income on post tax or pre tax basis. Companies, that offer 401(K) plan, either can make the same or non-elective contribution representing the worker. The company also can incorporate a profit-sharing clause in the plan.
The best attractive thing about this plan is that the beneficiary doesn’t have to pay the taxes till the time he / she withdraws money from their account. It acts just like a supplement to pension programs. Actually 401(K) plan came as an alternative to pension plans since the running cost of pension plans were surging considerably.
The key benefits of 401(K) Plan
Very first and the main benefit with 401(K) Plan is that, it provides full flexibility to manage your savings. It provides you with a diverse base for the investment strategies. Means you can spread your savings in mutual funds, government bonds or money markets or any other assets, in accordance with your age and the date that you choose to retire. But the most widely used and wanted option is the target- date funds. It acts just like a perfect combination of bonds and stocks. With all the passage of time, when you approach towards the retirement life, it turns out to be more and more conservative. In the initial years it focuses more on growth. While it gets near towards the maturity it stresses more on the income. Actually, market experts propagate this plan aggressively for hands- off investors. It makes whole lot of sense for those investors who don’t research or simply incompetent at picking out the correct stocks. It doesn’t matters what sort of an investor you are, but there is an investment plan for each and everybody depending on their preference and financial condition.
The highest possible amount of contributions that a staff member is eligible to make in 401(K) plan is set-up annually by the Internal Revenue Service. For this present financial year, that's 2013-2014 its $17,500. In case you are fifty years old or over it, then you're qualified for an additional contribution of $5,500.
The other side of 401 (K) Plan
Beyond any doubt, this plan is attractive when compared to other retirement plans but before you take your call on this, it is much better to go a greater depth on the specifics of this plan. Undoubtedly it allows you to save a whole lot but it imposes lots of restrictions and conditions upon you. The biggest issue is that you can’t make out for your employer’s contribution simply. You need to be employed by longer period with the exact same employer in order to become beneficiary of 401(K) payments. Moreover you'll find number of regulations that govern withdrawal of money and related penalties in the event you pull out your finances ahead of the age of retirement pointed out in the plan.