Table of Contents
Types of Bank Investments
Certificate of Deposit
Types of IRAs
401k Plans
Types of Bond Investments
Fixed Income Investing
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401k Plans
401ks are also employee retirement benefit plans, which allow individuals to save for retirement. This kind of employer sponsored plan lets the individual save substantial amounts with help from his employer’s contribution to the plan. Typically, employers match the employee contribution to the 401k plan.
401ks are easy to open, operate and manage. The employee can arrange for his or her contribution to be credited directly into the account. This enables him or her to maintain a consistent savings schedule.
In addition, the employee also gains the advantage of tax savings. In fact, many Americans use the 401k as a tax planning tool. The contributions are not taxable when they are deposited into the account, because taxes apply only at the time of withdrawal. In a Roth 401k, the contributions are taxed at the time of deposit into the account. When withdrawn, the funds in a Roth 401k are tax free.
The contributions to the 401ks are on the increase with successive governments steadily raising the bar on how much you can put into your 401k periodically. Higher allowable limits for contributions translate into lower taxes at present and greater savings accumulation for the future.
The range of investments available with your 401k plan may be restricted when compared to a self directed IRA or SEP IRA. Your employer may also have a significant influence on where your 401k funds get invested.
In spite of this limitation, the 401k is definitely a plan you should participate in to take advantage of the many benefits it offers. You should start saving early with a 401k. The earlier you start making deposits into the plan, the more time the money will have to grow and the more the number of contributions you can get from your employer.
A change of jobs does not affect your 401k’s value. Under such circumstances, you can continue to maintain status quo, although employer contributions from your previous employer will no longer be forthcoming. You can also roll it over into another 401k, or withdraw the cash. The last option is the least advised, as the many advantages of 401ks will no longer apply on the funds you pull out.
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