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401k Retirement Plan
| 401k Retirement Calculator | 401kcom
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The 401k Retirement Plan
is a type of employer-sponsored retirement plan. A 401(k)
allows a worker to save for retirement while deferring income taxes on the
saved money or earnings until withdrawal.
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401k Retirement Plans must be sponsored by an employer, typically a private
sector corporation. Self-employed individuals can set up 401k retirement
plans and,
until 1986, government entities could do so as well. The employer acts
as a program fiduciary and is responsible for creating and designing the
plan, as well as selecting and monitoring investments. (In practice,
nearly all employers outsource all of this work to one or more financial
services companies, such as a bank, mutual fund, third party
administrator, or insurance company.)
The employee elects to have a portion
of his or her wage paid directly, or "deferred",
into his or her 401k retirement Plan.
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In a trustee-directed 401k retirement plan, the employer appoints
trustees who decide how the account's assets will be invested. In
participant-directed programs (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' 401k retirement 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.
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These accounts are called "defined
contribution" accounts, to distinguish them from "defined benefit"
account such as a traditional pension. Defined benefit plans have a
definitely determinable benefit amount that usually has a fixed formula,
regardless of how the underlying plan assets perform. Defined
contribution plans according to Section 414(i) of the IRC have
individual accounts. Because plan sponsors want to take advantage of the
exemption from the fiduciary duty to diversify plan assets to minimize
the risk of large losses by using ERISA Section 404(c), these plans
usually provide each worker the ability to control the contents of his
account. The account value may fluctuate in value based on the
underlying investments. There is a risk that returns may even be
negative.
401k
Retirement Calculator
Some companies match employee contributions to some extent,
paying extra money into the employee's 401k account as an incentive
for the employee to save more money for retirement. Alternatively the
employer may make profit sharing contributions into the 401k Retirement Plan or
just contribute a fixed percentage of wages. These contributions may
vest over several years as an inducement to the employee to stay with
the employer.
When an employee leaves a job, the 401k Retirement Plan
account generally stays
active for the rest of his or her life, though the accounts must begin
to be drawn out beginning at age 70-1/2. In 2004 some companies started
charging a fee to ex-employees who maintained their 401k account with
that company. Alternatively, when the employee leaves the company, the
account can be rolled over into an IRA at an independent financial
institution, or if the employee takes a new job at a company that also
has a 401k or other eligible retirement plan, the employee can "roll
over" the account into a new 401k account hosted by the new employer. Source: Wikipedia |
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When you change jobs or retire, you should
consider all your options for your retirement plan assets. A 401k
Rollover gives you more investment options and allows you to keep track
of your total retirement savings in one place.
A 401k rollover into an IRA
can be time consuming and tedious,
but the resulting peace of mind is well worth it.
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401k Retirement Plan
| 401k Retirement Calculator | 401kcom
|