401k-The Best Plan For Your Retirement

What is 401k and what are the benefits employees will get? – Every US employee should understand these to help themselves for their comfortable life after retirement. It is financial planning option every US employee can have to build up money for his or her retirement. In this plan, The money is usually deducted each month from the salary by the employer. It is up to the employee to decide how much money should be taken out of the paycheck.

The money is generally invested in:
• Money market funds
• Growth funds
• Index based stock funds
The amount that is deducted is pretax.The contribution of the employee in general is about $16,000 per year. As 401k plan does not get protection from the ‘Pension Benefit Guarantee Corporation’ and the is an element of risk involved like any other similar investment plan. The money invested may or may not go as expected as it depends on where you invested. There is always a danger of losing money if invested unwisely.

The biggest benefit of 401k is the employer will match a percentage or all of the employee’s 401k contribution. This is called ‘401k match’. For example, if an employee contributes around 15% of his salary towards the 401k plan, the employer can match this with the 15% or less. It is estimated that at about 80% employers follow the same. This is taken as part of employee benefits and is one of the ways attract and retain good employees. The greatest advantage with 401k plan is that it does not attract any income tax until the funds are withdrawn from the account.

There are many benefits of the 401k plan: It is easy to comprehend and taken part in it; different investment options are offered to the employee, so he can choose to go with less risky investments; 401k plans are flexible in that they allow employees to increase or decrease the percentage of their contribution and also the type of investment they decide to put their money in. Hence, depending on other financial commitments, employees can decide to increase or decrease their contribution.

401k plan also gives employees a provision to borrow money in case of emergency and this will not show up in a credit history. One can use this money for medical emergencies, school fees, home repairs, repay mortgages or any other purpose. But the point is, the loan will attract some charges and during the period of repayment of loan, the employer’s contribution will cease.

The rules regarding the 401k match will be decided at the time of hiring an employee and the 401k match program starts. If you are lucky enough to join a company that offers a 401k match, it will be sensible to try and contribute as much as you can from your paycheck towards the 401k so that the same amount will be matched by the employer. The more that goes into the 401k plan, the greater will be the amount that accrues at the time of retirement.

Since you have the right to choose your own investment program, take the help of a trusted financial adviser to select the best scheme. Make sure that the financial adviser has no links to your company so that he is not partial in his advice. Some companies may invest in some standard places which may not suit the employee. It is important to invest wisely in programs that offer safety as well as steady but not a spectacular growth which may lead to disaster.

Just like an insurance policy, you must clearly state who the beneficiary of your 401k plan will be in case of your untimely demise and there’s still money in the account. The name of the nominee must be mentioned at the time the plan is started. In normal case, spouse will be the automatic beneficiary. Even if the couple is divided, the spouse is still the beneficiary unless a waiver is signed. Apart from spouse, children, partners or a trust can also be the beneficiaries. Though 401 is not a foolproof one, it is still a safe and steady option for salaried people.

Article by David Livingston of EQuote, who is a specialist in everything life insurance. For more information on affordable term life insurance and term life insurance, visit his site today.