| The 401(k) retirement plan is funded by | | | | creditors but not from domestic cases that |
| employee contribution and a matching employer | | | | include child support. |
| contribution. The major feature of the plan | | | | |
| is that the contributions are taken from | | | | There are some disadvantages in the 401(k) |
| pre-taxed salary. The fund accumulates | | | | plan, it is hard to get your 401(k) |
| tax-free until it is withdrawn. Most | | | | contributions before age 60 (59 1/2 to be |
| businesses and tax-exempt organizations can | | | | exact). The 401(k) is not insured by the PBGC |
| create these retirement plans. | | | | (Pension Benefit Guaranty Corp). Also, the |
| | | | company contributions do not kick in until a |
| The 401(k) takes its name from the IRC | | | | certain number of years of service have been |
| (Internal Revenue Code) of 1978. The | | | | given. The rules state that company matching |
| operation of the 401(k) is administered by | | | | contributions must either be a 3 year 'cliff' |
| the EBSA (Employee Benefits Security | | | | plan (100 percent after 3 years) or a 6-year |
| Administration) of the Department of Labor. | | | | 'graded' plan. |
| | | | |
| The 401(k) plan has a lot of advantages. | | | | Employees participating in a 401(k) plan have |
| First and foremost is that the employee can | | | | many options for investment. In most cases a |
| contribute pre-tax money that reduces the tax | | | | listing of mutual funds. The mutual funds |
| paid in each paycheck. Also, the company | | | | usually include money market fund, |
| contribution and any growth in the fund is | | | | treasuries, stock funds and bond funds. Some |
| free of tax until withdrawn. | | | | plans may include investing in company stock |
| | | | and US Savings Bonds. The employee gets to |
| The compounding of the fund during a 20 to 30 | | | | choose how the savings is invested. The |
| year period is quite amazing. The employee | | | | employee can also choose at any time to stop |
| has a lot of control in the direction of the | | | | contributions. |
| future contributions. When the company | | | | |
| matches your contributions, it adds something | | | | Financial advisers usually say that the |
| extra on top of your own money. All money in | | | | average 401(k) contributor is non-aggressive |
| the plan can be moved from one company to | | | | in terms of their investment options. Stocks |
| another unlike pension. | | | | have historically outperformed other types of |
| | | | investment, since the 401(k) is a long term |
| The 401(k) plan is protected by pension laws | | | | investment it should be able to minimize the |
| since it is a personal investment plan. It | | | | stock fluctuations. |
| includes protection from garnishment by | | | | |