What is a 401k
What is a 401k? Of the Internal Revenue Service code (similar to the US tax agency) section defines 401k as contributions to a plan whose recovery happens only when certain conditions are met. They take their name, because they are described in Section 401k of Title 26 of the Code.
The name 401k h become so popular by the Hollywood industry that is also used in the Japanese tax system with that name and in the UK, although there is not officially known that.
What is a 401k?
Features 401k plans
401k plans are intended for employees, the aim is that they decide how much of your salary (with limits) is intended to get into the plan. Some employers offer a great incentive to their employees, providing what is called “matching Contributions”. That is, if the employee has contributed $ 4,000 to the plan, your employer will contribute an additional $ 4,000, thus encouraging saving.
401k plans also allow interest on such investments do not pay taxes until the money is recovered, similar to our pension taxation.
Employers can provide 401k, they are even allowed to include all employees in the plan automatically, they still have to specify that you want to get away from it.
Finally, there is another feature that the reader will have guessed by reading the text, is that a difference between the pension and 401k is that 401 k are for employees, while the employment status of a person does not depend on their ability hiring a pension plan.
Virtually all employers put strong conditions for the recovery of an investment while people remain with the company and have less than 59 and a half years. Also recover the money before then, requires a 10% penalty except in cases of death of the employee, the employee’s disability or separation where the employee after the employee reaches age 55.
You can also bind the employee to cancel the account if certain conditions are not met (for example, a very low balance on it).
An interesting option that allows 401k plans is that the employee will ask for a loan at your own 401k, leaving the interest paid to the plan as part of the profit before tax of the plan itself. This is an alternative way to finance purchases on the one hand encourages the retention of capital in the plan and on the other hand does not limit the possibilities of funding and liquidity, absolute.
Finally, commenting that 401k plans are not the only way that allowed the United States to save for retirement, but there are other ways to do this, although the most popular.
What is a 401k?