Overview of 401k retirement plan

T hese are plans that companies have been offering their employees since 1979. Many American companies embrace this plans for the mutual benefit of the employer and employees. In the plan, both the employer and employee contribute an agreed amount to the scheme. The money so contributed is invested in mutual funds, bonds, and the stock market among other investments. They are not taxed capital gains or charged interest until the time of their withdrawal. They are widely known in that, when employees move from one employment to the other, and they can transfer their 401k retirement plan to the new employer. Other persons choose to cash in them when switching employment or they simply transfer them to IRA. Features of a 401k retirement plan One key feature of 401k plans is the ability they give the employer for them to give a matching contribution to what the employees give. Although they do this at their discretion, they mostly give a reasonable matching percentage. They are inexpensive for the companies who offer them and require filling a form given by the employer. After that, the company will deduct a certain percentage of the pay and deposit it into the plan before the employee gets his or her hands on the money in cash form. Benefits of 401k retirement plans After quitting employment, the account remains active. The employee can, therefore, choose to transfer it to the new employer, roll it to the IRA or leave it with the current employer. They offer a wide variety of investment choices for the parties. Diversification is key to ensuring that the risk associated with one investment is cancelled out by another investment. For this reason, a person can invest in various portfolios of choice. Money that is put into the account is not taxed until the time of withdrawal at the age of fifty-nine and half years. Withdrawals prior to this age attract hefty tax penalties. An individual can contribute as much as he or she can that can be well matched by the employer. This acts as a significant form of retirement savings plan. 401k retirement plan is a simple way of investment with contributions done by both the employer and employee.