401(k) Retirement Plans - The Basics

401(k) benefits supplement Social Security to enable us to enjoy our later years.  Men and women are living longer and healthier lives and that means more retirement years that need to be funded.  A 401(k) is an important component to retirement planning.

You may have access to a powerful retirement tool that can provide a portion of your retirement income—a 401(k) plan provided through your employer. What you get out of a 401(k) depends on how much you put in and how wisely you invest your monies. This overview can help you reap the full benefits of your plan.

Retirement Planning:  What Is a 401(k) Plan?

A 401(k) plan (named after a section of the federal tax code) is an employer established plan somewhat similar to an Individual Retirement Account (IRA). Both plans are designed primarily as retirement savings plans. A 401(k) plan is generally funded with your before-tax salary contributions and, at times, matching contributions from your employer. Your contributions, employer contributions (if any) and any growth in the 401(k) is tax-deferred until you withdraw the money. Once money is in your 401(k), you generally cannot make withdrawals before age 59½, except for special circumstances. Many employers, however, include loan provisions in their plans.

Make the Most of Your 401(k)

Remember, the key to maximizing your 401(k) contributions is to start early and contribute as much as you can. Set aside the maximum amount allowed, or at least try to increase your contributions each year. And always take full advantage of any matching contributions your employer might make.

Careful planning today may help you remain one step ahead of tomorrow’s inflation and can help provide you with the money you’ll want to enjoy your retirement years.