What You Should Know About Your 401(k) Plan & Tips for Managing Your 401k Plan

2019/02/25

Pension plans are gradually getting eliminated and there is much uncertainty surrounding social security. In these conditions, you have to take the responsibility of saving for retirement. And the best way to begin is by getting a good 401(k) plan.What You Should Know About Your 401(k) Plan & Tips for Managing Your 401k Plan

A 401(k) plan is an employment-related retirement plan and can be one of most sensible investment efforts that you can make towards your retirement.

What Will You Get from Investing in 401(k)?

Tax breaks – you will have more money to invest as the 401(k) contribution is deducted before the taxes are assessed.

Matching contribution – some employers will add certain percentage to every dollar that you are contributing towards your 401(k).

Meeting emergencies - In case of financial emergencies like medical and educational expenses, when you are buying a first home and or when you wish to avoid foreclosure, you can temporarily withdraw money from your 401(k) to meet your requirements. But remember, you will be only borrowing the money on which you will have to pay an interest too.

Do you Qualify for a 401(k)?

First, find out if your employer offers 401(k) plans. In some cases, employers require you make a certain amount of money or work in the organization for certain period before they can qualify you for any 401(k) plan.

Once you qualify, you need to determine exactly how much of your income you want to contribute towards your 401(k) plan. While the IRS limits contributions to certain dollars or a percentage of your salary, most employers would set the limits at 15 percent of your income.

The next step is to decide on the kind of investment that you want to make with your 401(k) money. There are lots of plans out there and most of them let you choose among bonds, stocks, cash and combination funds. While you make your decision, take into account the time-frame and risk levels that the investments offer.

What Happens if you Change Jobs?

Most employers will let you retain your 401(k) money with their organization even when you shift your job. You can also opt to move the existing plan into a new one or to an IRA. Keep in mind, if you cash out your 401k and your age is lesser than 59 1/2 years, you will not only be charged a penalty, but will also end up being taxed.

Are there any Risks Associated with 401(k)?

The 401k plans would be as reliable as your employer - some plans can use doubtful investments. So it pays to thoroughly check your employer’s 401(k) plan before you decide to take it forward.

What You Should Know About Your 401(k) Plan & Tips for Managing Your 401k Plan personal-finance

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