Retirement plan question?

Question

1. What does 5% salary defferal mean?

2. what does 5% profit sharing contribution to 401K plan mean?

3. If someone's plan allows him to use all mutual funds as opposed to only a certain company's fund, how does it matter?

Thanks a lot!

Answer 1

Vested means that you own the assets in the plan and take them with you if you go.

5% SALARY DEFFERAL  means tjhat 5% of your salary is deducted and paid into 401k

5% profit sharing contribution  is 5% of the company's profit is used to buy 401k for all enrolled employees, with no deduction from salary.

If you are not satisfied with the inane set of funds your  employer chooses, you would like to be able to choose a worse fund. Remember that on average mutual funds do not outperform the market, and funds that do not have to perform to get your business typically do not perform.

Answer 2

Salary deferral generally means that instead of getting that amount now, it's invested into a retirment plan and you don't pay tax until you take it out

The profit sharing contribution most likely means that the company will put money into your 401K retirement plan for you.  Again, you won't pay tax on it until you take it out.

It's good to be able to put your money in mutual funds rather than just in the company.  If the company has problems, your retirement money isn't affected.

Vested means that you have the right to the money.  Often when the company makes a contribution toward your retirement, you have to stay a certain number of years before you have a right to the amount they contributed - if you leave before you are "vested" you forfeit that money.