What is a 401(k) plan?
The major feature of the plan is that the contributions are taken from pre-taxed salary.
The fund accumulates tax-free until it is withdrawn. Most businesses and tax-exempt organizations can create these retirement plans.
The 401(k) takes its name from the IRC (Internal Revenue Code) of 1978.
The operation of the 401(k) is administered by the EBSA (Employee Benefits Security Administration) of the Department of Labor.
The 401(k) plan has a lot of advantages. First and foremost is that the employee can contribute pre-tax money that reduces the tax paid in each paycheck. Also, the company contribution and any growth in the fund is free of tax until withdrawn.
The compounding of the fund during a 20 to 30 year period is quite amazing. The employee has a lot of control in the direction of the future contributions.
When the company matches your contributions, it adds something extra on top of your own money.
All money in the plan can be moved from one company to another unlike pension.
This lens will detail information for you about 401k and the issues with it such as 401k withdrawal penalties.
Investing in your financial future is the greatest gift you can give yourself by far.
If you aren't sure where to begin or how, perhaps it's time to seek the services of a qualified financial advisor. His advice may prove invaluable and may give you a much more comfortable future than you would have ever imagined left to your own devices.
Click this link to arrange a free retirement financial planning consultation with one of our highly ranked financial advisors.
Do you want help from the experts?
Check Our Our Educational Lenses That We Designed For You.
We Think You Will Find Them Very Helpful.
The 401(k) plan is protected by pension laws since it is a personal investment plan.
It includes protection from garnishment by creditors but not from domestic cases that include child support.
There are some disadvantages in the 401(k) plan, it is hard to get your 401(k) contributions before age 60 (59 1/2 to be exact).The 401(k) is not insured by the PBGC (Pension Benefit Guaranty Corp). Also, the company contributions do not kick in until a certain number of years of service have been given.
The rules state that company matching contributions must either be a 3 year 'cliff' plan (100 percent after 3 years) or a 6-year 'graded' plan.
Employees participating in a 401(k) plan have many options for investment. In most cases a listing of mutual funds.
The mutual funds usually include money market fund, treasuries, stock funds and bond funds. Some plans may include investing in company stock and US Savings Bonds.
The employee gets to choose how the savings is invested. The employee can also choose at any time to stop contributions.
Financial advisers usually say that the average 401(k) contributor is non-aggressive in terms of their investment options.
Stocks have historically outperformed other types of investment, since the 401(k) is a long term investment it should be able to minimize the stock fluctuations.
Peace Of Mind and Financial Security is What We Can Bring To You.
Financial Advisors For You
How well are your investments doing?
Planning Your Finances To Bypass The 401k Penalties
Planning for retirement means making some very crucial, and hopefully wise, financial decisions.It can also be a very difficult time for someone who has very little understanding of what their 401k plan is really about.
401k plans tend to differ a substantial amount depending on the company and what the employee agrees to. There are many aspects of a 401k plan that tend to stay the same across all spectrums.
There are several important things to know, especially regarding early withdraw and the penalties incurred. Retirement financial planning is crucial and knowing everything you need to know will make the process much more easier.
Withdrawing money early from a 401k is a common mistake that many people make. Often times, they want to pay off a college bill or home loan or they think of the money as theirs and just want it as quickly as possible.
However, for people under the minimum age for withdraw, this can bring with it massive financial penalties. Taxes can be in excess of one quarter of the entire amount. And there are additional smaller penalties that may add up to be almost as much.
A person who withdraws their money early can lose nearly half of it to penalties. Fortunately, there are some ways to avoid taking penalties. The importance of financial planning depends on your success in this task.
The best method is to completely avoid taking an early withdraw. If the money is needed there are methods with many 401k plans where the employee may take a loan out of the holdings at an attractive interest rate.
The good news is that the interest all flows back into the 401k.
Essentially, a person ends up borrowing the money and owing nothing once it is repaid, but viewing this as free money can be a huge mistake.
Abusing or misusing a 401k plan can result in massive financial penalties upon retirement. If there is a desperate need to take the money out and there is no option for a loan, there is one more thing a person needs to know.
Most 401k plans come with what is called a 401k hardship rule.
This allows a person to take money from their 401k, all of it if necessary, in case of an extreme need.Only a few things qualify as extreme.
A person who requires the medical attention to maintain their quality of life or a person who faces foreclosure may qualify for the hardship rule.
However, falling back on the 401k hardship rule is a last resort and it should be stated that it typically results in a complete loss of the 401k plan.
While the 401k hardship rule may protect against some of the huge penalties incurred for early withdraw, it is still not an optimal situation and require extenuating circumstances.
It is always important to understand that a 401k plan is an investment for the employer as much as the employee.
Breaking the contract will always come with penalties.
Knowing the exact specifications of the individual 401k is important, but it is equally important to understand the penalties.
Need to learn more about the importance of financial planning?
-
Financial Planning For A Secure Retirement
-
This lens will provide you with useful details about the importance of financial planning. On this lens, we will be discussing the importance of retirement planning and what planning your finances can do for you. These subjects are discussed in-dep...
-
Safe Investing for your Retirement
-
There is a lot a person can do even after retirement. It is an end to one chapter in a person's life and the beginning of another. There are many things a person can do such as learn new skills, take classes and be more active with the community. By...
-
A Beginners Guide To Safe Investing For Your Retirement
-
This lens contains the details that you need to know about safe investing for your retirement. We will be providing you with a guide for safe investing and discussing why using asset management advisors could be the solution to your investing needs....
-
The importance of retirement planning
-
Do you want to start planning your retirement? Are you unsure on how to proceed? Then these tips will be helpful to you when setting up your retirement plan. Have the proper mindset It is crucial that you have set your mind to set aside a part of...
-
Understanding Annuities: Pros And Cons Of Annuities
-
This lens will serve as a guide to help you understanding annuities and how you may benefit from selecting them as a retirement strategy for your retirement income. On this lens, we will be answering the question of what annuities are for you, as we...
-
Retirement financial planning
-
When people talk retirement planning they are generally referring to financial planning. How much is enough? That will depend on the lifestyle you are going to plan on having once retired. Some place a set amount into a retirement fund each week. O...
-
Avoiding 401k withdrawal penalties
-
The 401(k) retirement plan is funded by employee contribution and a matching employer contribution. The major feature of the plan is that the contributions are taken from pre-taxed salary. The fund accumulates tax-free until it is withdrawn. Most b...
-
Tips for Retirement financial Planning.
-
Instead of waiting for retirements benefits that you are entitled to monthly, here are some tips you can do to still make it grow even further; 1. You do not have to wait until retirement before you start saving. At an early age, you can start savin...
-
What Are Annuities?
-
Planning for your retirement can prove to be a very tiring task but making the right decisions before you hit the critical retirement age is no excuse for learning all the things that you need to know about securing this later stage of your life. Li...
-
Stock Market Basics for retirement
-
Rather you are day trading or if you have other means of trading you should understand the basics in a transaction and how you can make a huge profit off of it. Some people believe that you can trade stocks for stocks, however, that is not what trad...
-
The importance of retirement planning
-
Do you want to start planning your retirement? Are you unsure on how to proceed? Then these tips will be helpful to you when setting up your retirement plan. Have the proper mindset It is crucial that you have set your mind to set aside a part of...
It is time to get some retirement financial planning help to secure your future!
What Is Your Investment Plan Today?The Financial Markets Are In Turmoil,
People Everywhere Are Losing Their Savings & Portfolios Once Filled With Potential Are Vanishing
Weary at the idea of seeking financial advice in these times? Understandable! After all, each passing day seems to bring more and more bad news out of Wall Street.
Listen, if you can pull yourself away from the 'doom and gloom' coming from the media each day, you can actually place yourself in a great position with your financial planning.
Because the markets are down, you have the wonderful opportunity to take full advantage of the current investment situation. Yes the Dow has fallen, there is no denying this fact. Do you know where it was 10 years ago? How about 25 years ago?
Seeking financial advice is serious business. FinancialAdvisor4u has put together a team of financial advisors who can answer those questions, and those you have about your own personal financial situation.
Whether you seek advice on retirement planning, your 401k, safe investments or how annuities can work in your favor, let's work together finding the perfect financial advisor for you. Fill out the form below for a Free, no obligation, 30 minute consultation.
It's that much needed 'bridge' between your financial goals and the qualified financial advisor who can help you Today!
Fill Our Our Contact Form And Get Your FREE Consultation Today!
"No matter, with all that is going on with the economy, there is always opportunity's in the investment world. Even if the market is going up, down, or sideways, there is always money to be made. Finding a financial adviser who can operate in all environments is the key."
- T. Jones
"It is normal and human to become isolated and depressed when we see our investments going down and there seems to be no answer. The worst thing that one an do is bury your head in the sane and take no action. Go get a 2nd, or 3rd opinion. Find a financial adviser that is proactive on your behalf."
- A. Prescott
Rate Me, Please!
Your Ratings Help Us Immensely
Do you think we earned a 5 Star rating from you for the work we have done on this Squidoo lens about retirement financial planning?
Your ratings help us improve this lens, and get the word out to more people around the world about our selection of squidoo lenses featuring personal financial articles.
Please 1-5 Star rate us at the top of the page, and sign our guestbook!
Thank you!
What You Need To Know About Hiring Your Financial Advisor.
Financial advice is literally everywhere. Everybody has an opinion to give it seems, friends, family, neighbors and even strangers.A lot more people therefore are going to financial planners.
They consult these advisers in the belief that these people know better.
Here are some things you would want to know about your financial planner
1. Is the person qualified?
Anybody can say that he or she is an expert financial planner. No particular degree or experience is required. There is no department of government that oversees planners. Of the quarter of a million financial planners, only an approximate of 40,000 are CFP (Certified Financial Planner). The CFP is the most acknowledged designation for financial planning.
Even with this certification, there are no guarantees. It takes experience and continuous education plus a high degree of ethics and integrity to be a professional planner.
One excellent option is to check his CFP status as well as his PFS (Personal Financial Specialists) and ChFC (Chartered Financial Consultants) status.
2. Is he looking after your interest or his?
Professional financial planners take their duties on your retirement plans seriously. Your needs are ahead of his or hers.
Unfortunately, most of the so called financial planners are just trying to sell you investments. They are not obligated to provide the best retirement plan but are only prevented from selling you an unsuited plan.
The best option is to ask the financial planner to furnish you a printout of code of ethics that he needs to comply. It is a difficult read, but knowing the standards which your planner abides is a must.
3. How is your planner getting paid?
Several financial advisers still get most of their income through commissions. Many gracefully slide through the 'commission' tag by giving themselves the title 'fee-based' financial planners. They also simply duck the compensation subject.
Commission is not really bad, but it does create a complexity of interest with the retirement planner. Your retirement planner should voluntarily tell you how he gets paid, or at least give a direct answer when asked.
4. A slice of the pie or the whole thing?
An excellent financial planner takes into account the whole financial situation of a client, including their plans for estate and budgets. That is the only true way of looking at a comprehensive retirement plan.
Most of these financial planners simply focus on a single projection of a client's financial situation. In most cases, they focus only on the area in which they have received any training.
When your adviser focuses on a single or only a few aspects of your retirement plan, get one that will take into account your entire situation.
5. This is what I'm selling. This is what you must buy
Financial planners that do not have the necessary education in comprehensive retirement planning often rely on what their companies require them to invest in.
For example, a stockbroker may possibly hard sell certain mutual funds or individual stocks. This is also true even when the best utilization of the money is on paying the mortgage or raising the emergency fund.
Your retirement planner must be able to discuss intelligently about methods other than his recommendations. If he is not able to, or simply insists that his way is the best way, look for another adviser.
Investing in your financial future is the greatest gift you can give yourself by far.
If you aren't sure where to begin or how, perhaps it's time to seek the services of a qualified financial advisor. His advice may prove invaluable and may give you a much more comfortable future than you would have ever imagined left to your own devices.
Click this link to arrange a free retirement financial planning consultation with one of our highly financial advisors .
Reader Feedback
-
Reply
- financialadvisers4U financialadvisers4U May 20, 2009 @ 7:49 am
- Thank you PKS Paula. We feel people want to know more about the topics of finance.
-
Reply
- pkspaula pkspaula May 15, 2009 @ 10:09 am
- Nice lens full of good information.
-
Reply
- financialadvisers4U financialadvisers4U Apr 11, 2009 @ 3:39 pm
- Color expert. Thank you for stopping by!
-
Reply
- Color_Expert Color_Expert Apr 11, 2009 @ 9:28 am
- Thanks for the financial insights.
-
Reply
- financialadvisers4U financialadvisers4U Apr 9, 2009 @ 7:32 am
- ElizabethJeanAllen, Thank you for the welcome to the Totally Awesome Lens group!
-
Reply
- ElizabethJeanAllen ElizabethJeanAllen Apr 8, 2009 @ 7:32 pm
- Welcome to the Totally Awesome Lenses Group.
Lizzy
-
Reply
- financialadvisers4U financialadvisers4U Apr 7, 2009 @ 5:03 pm
- Gamin, You are welcome. I am also learning more and more about the financial world. heck, I have now learned how to spell annuities.
-
Reply
- Apr 7, 2009 @ 3:16 pm
- I heard people talking about the 401(k) plan but never new what it was, thats for the great info
-
Reply
- financialadvisers4U financialadvisers4U Mar 31, 2009 @ 7:48 pm
- We are all learning. Have you checked out our other lenses on financial advice?
-
Reply
- queenofthedreamers queenofthedreamers Mar 30, 2009 @ 9:47 am
- I am learning more than I thought. I have so much more to learn.
Was this page useful to you?
Financial Advisors- Wealth Managment - Retirement Consultants In North Carolina.
Where You Can Find Highly Ranked Financial Advisers In North Carolina.
- Financial Advisors, Raleigh, NC
- We provide highly ranked financial advisors in Raleigh, North Carolina. Retirement consultants, Wealth Management Advisors, Stock Brokers and more. Free Consultation.
- Durham, NC Financial Advisors
- We provide highly ranked financial advisors in Durham, North Carolina. Retirement consultants, Wealth Management Advisors, Stock Brokers and more. Free Consultation.
- Financial Advisors, Asheville NC
- We provide highly ranked financial advisors in Asheville, North Carolina. Retirement consultants, Wealth Management Advisors, Stock Brokers and more. Free Consultation.
- Financial Advisors, Greensboro, NC
- We provide highly ranked financial advisors in Greensboro, North Carolina. Retirement consultants, Wealth Management Advisors, Stock Brokers and more. Free Consultation.
- Financial Advisors Burlington, NC
- We provide highly ranked financial advisors in Burlington, North Carolina. Retirement consultants, Wealth Management Advisors, Stock Brokers and more. Free Consultation.
New Money Magnet Quiz
New Wikipedia
In the United States of America, a 401(k) pension plan allows a worker to save for retirement and have the savings invested while deferring current income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wages paid directly, or "deferred," into his or her 401(k) account. This deferment is also known as a "contribution."
401(k) plans are mainly employer sponsored plans; the employer can, as a benefit to the employee, optionally choose to "match" part or all of the employee's contribution by depositing additional amounts in the employee's 401(k) account or simply offer a profit sharing contribution to the plan. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested. The title "401(k)" references 26 U.S.C. ยง 401(k), a section of the Internal Revenue Code.
Some assets in 401(k) plans are tax deferred. Before the January 1, 2006, effective date of the designated Roth account provisions, all 401(k) contributions were on a pre-tax basis (i.e., no income tax is withheld on the income in the year it is contributed), and the contributions and growth on them are not taxed until the money is withdrawn. With the enactment of the Roth provisions, participants in 401(k) plans that have the proper amendments can allocate some or all of their contributions to a separate designated Roth account, commonly known as a Roth 401(k). Qualified distributions from a designated Roth account are tax free, while contributions to them are on an after-tax basis (i.e., income tax is paid or withheld on the income in the year contributed). In addition to Roth and pre-tax contributions, some participants may have after-tax contributions in their 401(k) accounts. The after-tax contributions are treated as after-tax basis and may be withdrawn without tax. The growth on after-tax amounts not in a designated Roth account is taxed as ordinary income.
401k Blog Posts from Google
- 401k Rollover to IRA is the Best Strategy for Retirement Account ...
- When it comes to consolidating your retirement assets, there's not much of a better strategy than rolling over your 401k into an IRA. Here's a list of all the benefits.
- Ford will reinstate 401(k) matching and raises next year - egmCarTech
- FoMoCo told its employees late last week that it plans to reinstate raises, 401(k) matching and tuition assistance in 2010. ...
- Impact of Economic Conditions on 401(k) and Profit Sharing Plans ...
- According to the just-released Impact of Economic Conditions on 401(k) and Profit Sharing Plans survey from the Profit Sharing/401k Council of America (PSCA), more than three-fourths of plan sponsors continued their matching company ...
by financialadvisers4U
(more) Explore related pages
What is a Roth 401(k) and why is different?- As of January 1, 2006 there's a new kid on the Retirement Plan block - The Roth...
Understanding Annuities: Pros And Cons Of Annuities- This lens will serve as a guide to help you understanding annuities and how you...
A Beginners Guide To Safe Investing For Your Retirement- This lens contains the details that you need to know about safe investing for yo...
Financial Planning For A Secure Retirement- This lens will provide you with useful details about the importance of financial...
The importance of retirement planning- Do you want to start planning your retirement? Are you unsure on how to proceed?...
- A Beginners Guide To Safe Investing For Your Retirement
- This lens contains the details that you need to know about safe investing for yo...
