by bizavings
If your company offers a 401K retirement plan, you have the option to select the funds you desire to invest. Your choice must be from a list of funds provided in the 401K plan. Each employee can contribute up to a certain percentage of their pay, which is deducted directly from the salary before taxes into a 401K. Some employers match a certain percentage of your contribution, which is then invested. These funds grow without being taxed. They can be withdrawn only when you reach the age of fifty-nine and a half. You must pay income tax at the time of withdrawal. The funds in the account can be invested in different stocks, bonds, mutual funds or other assets, and are not taxed on any capital gains, dividends or interest until their final withdrawal.

What is a 401K?
A 401K is an employer-sponsored retirement plan and is grouped into two categories.

1. Defined Benefit Plan: The employer promises to pay a defined amount to retirees who meet certain eligibility requirements. It usually links the benefit to the amount of service and final average salary. Employees can either receive it as monthly retirement income or as a lump sum on retirement.

2. Defined Contribution Plan: This is a contribution that an employer makes, and not the benefit that the employee will receive at retirement. Since it is not a monthly income, an employee receives the amount in a current, deferred lump sum, or annuity on leaving the company. Laws prohibit companies from utilizing the 401K money, but they can invest 401K money in stock funds. If the company goes bankrupt then you lose that money.

Benefits of 401K Plans

There are five key benefits.

1.Tax advantage

2.Employer match programs

3.Investment customization and flexibility

4.Portability

5.Loan and hardship withdrawals

How to Balance 401K Funds
Do not invest heavily in the stock of your company. Instead, diversify your investments. Contribute the maximum tax deferred amount to your 401K each year. You can also make additional, non tax-deferred contributions of less than $35,000 or 25 percent of your annual income. Your age and company’s policy plan are the deciding factors in rebuilding your 401K balances. A younger person will have a longer time to rebuild, than a person who is over 50 years of age.

The suggested allocation for balancing 401K at the three life stages is:

1.Aggressive: For those with 35 or more years until retirement.

50%-large cap stocks

15%-mid cap stocks

15%-bonds

10%-small cap stocks

10%-international stocks

2.Moderate: For those with 20 years until retirement.

35%-large cap stocks

35%-bonds

10%-mid cap stocks

10%-small cap stocks

10%-international stocks

40%-bonds

30%-large cap stocks

10%-mid cap stocks

10%-international stocks

10%-cash

You can derive the maximum benefits from your 401K plan, if you make wise investment choices and build your portfolio carefully. 401K plans are the best way to plan for your retirement. About the Author: David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com Article Source: Populate.NET Article Directory

by Joe268
Roth 401k is a good retirement savings option. Although it does not provide an up-front tax-deduction, the account eventually becomes tax-free, because the withdrawals taken at retirement are not subject to income tax.

This tax benefit can only be provided to persons who are at least 59.5 years old, or are disabled, and who have held the account for a minimum period of five years. Roth 401k provides an opportunity to save with a different kind of tax treatment. It is a good option for those who are just starting their careers, and expect their income to grow in the future.

Eligibility:

Anyone whose employer offers Roth 401k is eligible for this investment option. If an employee leaves his/her job, the balance can be rolled over. One major benefit of enrolling is that an account holder does not lose eligibility when the income becomes very high. There is no provision of helping a person open this account if his/her employer does not offer Roth 401k yet. Employers provide a form to their employees to state some, or all, of their 401k contributions that will go into their account.

Difference between 401k and Roth 401k:

401k makes available some tax relief in the year a person may have contributed into the account. However, a 401k-account holder is liable to pay taxes on his/her contribution, along with all the investment earnings, later.

A Roth 401k account holder does not get any tax benefit in the year of the contributions, but all the earnings in the account will be free of tax for as long as the account exists. Besides, a holder can roll his/her account to a Roth IRA. The Roth IRA account continues to grow with tax-free earnings for as long as it exists. However, Roth IRA is not available to taxpayers with an income above a certain level.

Advantages of Roth 401k:

Since tax rules allow a person to make it as large as a traditional account, the Roth 401k account is more valuable compared to it. Therefore, saving in a Roth 401k account can make a person much better off at retirement. Given below is a table showing the amount required in a traditional account to have the equivalent of $100 in a Roth Account.

TAX- BRACKET AMOUNT
10% $111.11
15% $117.65
25% $133.33
28% $138.89
33% $149.25
35% $153.85

While many companies that already have the traditional 401k plans, wanted to implement Roth 401k plans, which have been effective from January 1,2006 according to the law, in reality only a few actually have done it, because of the extra expenses involved. These companies want to first observe the success of Roth 401k before actually undertaking the cost of the implementation.

Roth 401k is a good investment option to save tax-free earnings for retirement. People can take advantage of it to be able to have a secure retirement, which is free from monetary worries. About the Author: Joe Kenny writes for the UK Loans Store where you will can compare UK secured loans and offer more information on debt consolidation loans and other loan topics available on site.
Visit Today: http://www.ukpersonalloanstore.co.ukArticle Source: Populate.NET Article Directory