What Are 401k Plans?
Posted on May 31, 2010
Filed Under Personal Finance | Leave a Comment
The average employee can get a tax break on their retirement saving by investing into 401k plans. The money is withdrawn from your paycheck each month and put into an account before it can be taxed. The money can then grow tax free until retirement.
Those are the basics of the account. However if you want some more detailed information below are some 401k rules on these plans.
The withdrawal rules for 401k plans will allow you to take your money out once you reach the age of 59 ½. But once you take the money out you will have to pay taxes on it.
If you want to take out the money at an early age you will have to pay an additional 10% fee on anything that you take out because of the early withdrawal penalty. This penalty was put into the plan to encourage people to save up their money and to not take it out early.
If you are under the age of 59 ½ and want to take money out early you can always get out a loan from your 401k plan. The 401k loans rules allow you to take out a low interest loan from your 401k provided you pay it back. Usually if you need to take money out of the account early this is the best option.
Another thing to remember about the 401k plan is that you can roll it over into another investment account. Doing a 401k to IRA rollover can help you switch your account into an IRA and benefit from whatever investment options or other benefits that an IRA plan will have.
Those are the basics of a 401k account. This can be a great way to save for retirement. Common wisdom reminds us that the more you invest into the plan and the less you take out the better it will work, just something to remember.
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