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| withdrawn.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| growth in the fund is free of tax until withdrawn.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