What is 401k? how does it work?

Question

hey, the company i work for just enrolled me in their "401k thing"... i just have no idea what it is! what is it and how does it work? also they said they were gonna deduct the 2%.. is that enough? or should i raise it??

P.S. im only 18.....

Answer 1

A 401(k) plan is a company-sponsored qualified retirement plan for employees. Contributions and earnings in a 401(k) plan are not subject to federal and most state income taxes until the funds are withdrawn. A 401(k) plan allows you to save money on a pretax basis, and most employers will contribute matching funds to make the 401 (k) plan even more lucrative. Usually you will have the option to decide how much you contribute (up to the maximum allowed by the government) and where you will invest your contributions (from a list of funds provided by your plan sponsor).

Answer 2

Well your 401k is basically an savings account where it collects money from what you make and saves it for future use, but let me mind you that the government borrows it and you can only access the money that is in it at a certain time in your life. Ex: after retiring or when in debt. But you should make the choice to raise or not, I would if you know that you can spare to put away money for future use.

Answer 3

I think this means raising your salary because I looked it up on google.com and it showed a stack of money and a chart.

Answer 4

they take away money form every paycheck you get until your 30 and put it in your account, dont touch it till you retire, interest will build up and you will have money to retire comfortably

Answer 5

A 401k is a retirement savings plan that is tax deductible.  So if you put $200 in the plan, your "take-home pay" will only be reduced by about $150.  (Don't quote me on the actual figures.  Ask your HR professional).  Basically, you put 2% of every paycheck in an account that is invested (usually) in stock mutual funds.  (I think bond mutual funds are a bad investment.  Too much risk and not enough "upside potential".)

You can probably deduct 6% of your salary, and I would recommend deducting the full 6% as an investment in your future.  I know it seems far away, but if you start now, you will develop good habits for all of your jobs.

Treat the 401k account as "off-limits" money.  Pretend it doesn't exist.  Don't think of "uses" for it, because the tax penalties are very stiff.  Not worth it!  When you leave this job, just "roll over" the funds to a bank IRA (as a Certificate of Deposit) or an online mutual fund (like one from Wells Fargo or Fidelity).  Avoid financial planners who all take a cut of your investment.

Answer 6

you pick a percentage of your paycheck that you want to go into your 401k which is a saving plan (retirement plan) with an interest rate. So when you put your money in it every week it gains interest and makes more money and then that will make even more money until you are old enough to retire and cash it in and get all the money that you put into it all of the years that you worked and enjoy your life of retirement. You can roll it over from one company to the next as you work through life.

Answer 7

However much your company contributes you want to at least match that. If you start saving now you will retire a happy man!!!

Answer 8

http://www.research401k.com/401k-vesting...

Answer 9

http://www.401k-easy-online.com/investme...

this website should help alittle!!

Answer 10

The 401(k) plan is a type of employer-sponsored defined contribution retirement plan under section 401(k) of the Internal Revenue Code (26 U.S.C. § 401(k)) in the United States, and some other countries.

A 401(k) plan allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wage paid directly, or "deferred", into his or her 401(k) account. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.

Some assets in 401(k) plans are tax deferred. Before the January 1, 2006 effective date of the designated Roth account provisions, all 401(k) contributions were on a pre-tax basis (i.e., no income tax is withheld on the income in the year it is contributed), and the contributions and growth on them are not taxed until the money is withdrawn. With the enactment of the Roth provisions, participants in 401(k) plans that have the proper amendments can allocate some or all of their contributions to a separate designated Roth account, commonly known as a Roth 401(k). Qualified distributions from a designated Roth account are tax free, while contributions to them are on an after-tax basis (i.e., income tax is paid or withheld on the income in the year contributed). In addition to Roth and pre-tax contributions, some participants may have after-tax contributions in their 401(k) accounts. The after-tax contributions are treated as after-tax basis and may be withdrawn without tax. The growth on after-tax amounts not in a designated Roth account are taxed as ordinary income.

Answer 11

http://www.path2usa.com/money/tax_relate...