Insure your Future

It's a plan that many employers offer, yet many employees are hesitant to sign up for their employer’s 401k benefits. So for those of you who are not sure what a 401k plan is or what it means for your retirement, we will explain and hopefully answer some of your questions so that you can take advantage of the plan.

A 401k is a retirement plan that is offered through your employer. Many businesses offer 401k plans to their employees. The first thing you will want to ask is if your company has a 401k plan. Each company may have different stipulations and conditions. Then find out if they match your contributions, or what the maximum required for them to match is. It’s like free money, whatever you contribute to the 401k your employer will match.

Remember the saying “Out of sight, out of mind”? That’s what a 401k plan embraces. The money you agree to contribute comes right out of your paycheck. Your paying yourself before you or anyone else can spend the money. Even if you are stretching your paycheck, it is important that you try to at least contribute the minimum amount allowed.

The money you put into a 401k plan is taken out before taxes, meaning the rest of your take home pay is taxed less.

When you are enrolled in a 401k plan all of the work is done for you. Experienced professionals handle all the complications and confusing investment-lingo. Popular investment options for your company are mutual funds, which are low risk investments, as it is spread out among many stocks instead of all riding on one stock. Your plan may also include other investment options. Make sure to review and discuss all investments that your plan will involve.

Many plans give you access to your contributions in the event of a financial emergency. It is important that you try and avoid this at all costs. The whole purpose of a 401k plan is to ensure that you can have a comfortable retirement. When you borrow against it, you are just setting yourself back further. You can take out a loan against your plan where you agree to pay back what you borrowed, with interest, or you can make a withdrawal from your account. When you take a withdrawal you do not pay it back.

There are certain circumstances where you can take a withdrawal. The most common type is hardship withdrawal and according to IRS regulations there are four types of hardships that allow this. They are: payment of certain unreimbursable medical expenses incurred by the participant, the participant’s spouse, or any dependents; Cost relating directly to the purchase of a participant’s primary residence (excluding mortgage payments); Payments of tuition, related to educational fees, and room and board expenses, for the next year of post-secondary education for a participant, the participant’s spouse, or any dependents; payments necessary to prevent eviction or foreclosure on the mortgage of a participant’s principal residence.

There are a few variations of a 401k plan. They come with the same benefits and characteristics as a regular 401k plan. A 403b plan is a plan for university, civil government, and not-for-profit employees. A 457 plan is for state and federal government employees.

You can keep yourself informed about the status of your 401k account. Many companies mail out statements full of information about your account balance, account value, and the loan balance if your borrowed against it. Other ways to monitor your account is through automated telephone services and online.

If you leave or change jobs you can rollover your 401k plan into your new empoyer’s account or into a personal IRA (Individual Retirement Account). This is the best choice as you do not have to start over your benefits if you start a new job. When you start a new job, ask your employer about their 401k plan and if your previous plan will rollover with the same benefits. Ask them what their conditions are. The process of rolling over your account can take awhile and require some paperwork.

When it comes to retirement it is important to start early and be committed to paying yourself. Many people plan or expect to work well into their retirement age, but many things can prevent that from happening. Your 401k will insure that when the time comes to retire, you will be ready.

More information that will help answer any of your questions:

Fidelity Investments

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