|
Home / Finance
401K plans And Their Benefits
By:Sandra Stammberger
What exactly are 401k plans? A 401k plan is a type of an employer sponsored retirement plan for the employees of the organization. The plans are generally grouped into 2 main categories: defined benefit and defined contribution plans. In the case of the defined benefit plan, the employer promises to pay the retired employee a defined amount as agreed after the employee fulfils the required eligibility and criteria. Under the defined benefit scheme, the retired employee continues to receive monthly benefits from the employer after meeting the required criteria. The benefits of the plans are linked to the services rendered by the employee in the organization and also based on the final average salary calculated by the company. The employee can fully trust the benefits offered by the plans, but the only disadvantage is that protection against post- separation inflation is usually limited. Until recently the defined benefit plan was the most favored plan by employers in organizations.
In the case of defined contribution plans, the plan defines only the contributions that the employer can make. It does not mention the benefit In advance and hence the retirement outcomes are also not known in advance. Employee’s 401k contributions are automatically debited to their accounts or deducted from their monthly paycheck. Also, the money taken out before the employee’s paycheck is taxed.
The best advantage of the 401k plans is that any business whether it is a huge organization or a sole proprietorship can go in for the plan. The top management of the company defines the guidelines at the time of the plan being established in the organization. The employees have to fulfill certain eligibility criteria for being a part of the plan. The organization has full right to exclude certain people from the plan like part time workers and union members. The contributions to the plan can come from the voluntary amount deduction from the paycheck of the employees and also from the employer if he is willing to make a contribution. The employees are immediately 100% vested with their own salary deduction tax deferred contributions.
The employee withdrawals from the plan before the age of 59 and half years are liable to 10% penalty. However the employees who retire anytime before the calendar year in which they attain the age of 55 or later are not subject to tax liability. The employer is not under any obligation to make any contribution to the 401 k plan, nut under certain circumstances the employer is advised to make a contribution towards the plan. One such case is when the plan is deemed top heavy. Also with the normal plans, turnkey and internet plans are also available. There is excellent range of investment options available for the plan sponsor. An average 401k plan has about 15 options on an average to choose from. The participants can stop contributing to the plan during the course of the year, as determined by the company. The vendor selected by the plan sponsor is responsible for making reports, doing accounting and testing of the plans.
We see how the 401k plans are useful for the employees and help them later in their retirement years.
Digg
del.icio.us
Blink
Stumble
Spurl
Reddit
Netscape
Furl
Article keywords: financial planning, personal finance, 401k, 401k plans
Article Source: http://www.articles2k.com
S. Stammberger is the editor of 401K
Power Plans. 401k Plans Explained.
|
|
| Top Finance Articles |
- 1). Locate And Find Debtors With A Credit Collection Agency By : Stu Pearson
It can be a frustrating experience trying to collect a debt from a customer who just seems unwilling to pay. Letters sent to their address go ignored, and phone calls are answered with empty promises of payment. While this is certainly a bad scenario, what if a customer who owes you money just disappears? It is possible to locate and find debtors with a credit collection agency, and in this article we’ll explain to you the methods behind their tracking.
|
|
|
|
|
- 4). Who Is Responsible For Closing Costs By : Raynor
Buying or selling a home is a euphoric experience for both of the parties involved. This euphoria can cool when you learn which party is responsible for the closing costs.
Who Is Responsible For Closing Costs
When looking to buy or sell a home, every person eventually arrives at the question of funding closing costs on the transaction. To put it simply, both buyers and sellers typically are responsible for some of the closing costs.
|
- 5). Family Finance By : Joseph Kenny
One of the hardest things that young couples report during their first year of marriage is getting to grips with joint finances. While most are willing to share what they have with their partner, they are not sure on the best way to bring this sharing into effect so that they can share with their new partner, but at the same time maintain financial security and a degree of independence.
|
- 6). Preparing Your Finances For A Bird Flu Pandemic By : Pandemic Zone
If you have been paying attention to the news lately you may of heard of the threat of bird flu and a world pandemic. What would this mean and how would it affect your financial holdings. The World Bank, which has estimated that a bird flu pandemic lasting a year could, cost the global economy up to $800 billion dollars. The economic toll on the world economy will be catastrophic.
|
|
|
- 8). High Gas Prices and Ways to Save By : essmeier
With Memorial Day around the corner, the great American travel season is here. During the summer, most Americans take at least one extended vacation, and four fifths take that trip by automobile. Unfortunately, this year, the price of gas is at record highs, and no one likes to spend their vacation money on gasoline. While there is little to be done about the price of gas itself, there are some things the average vacationer can do to help ease the costs of auto travel.
|
|
|
|
|
| New Finance Articles |
- 1). How To Earn Money Online In Five Easy Steps By : John Morris
Living in Los Angeles, Greg realized that there are a lot of people who work from home rather than the office. One reason is that many of these executives are writers and producers of films and television shows...
|
- 2). You Can Stick to Your Budget By : Jonathon Hardcastle
Recent studies have shown that Americans are spending less money on necessities than ever before. Yet, more Americans are also in debt. The unspoken fact that makes both those statements true is that Americans are spending more and more money on luxury items.
|
- 3). Technical Analysis Of Stock Data By : John Morris
To perform a technical analysis is simply examining stock chart data in order to make predictions about the future of that stock. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in...
|
- 4). Getting The Most Money Out Of Selling Your House By : John Morris
It is easier said than done to make a profit in the real estate market nowadays. Those that manage to consistently turn a profit on real estate investments have been working in that field for years and are using proven strategies in order to minimize risk...
|
|
|
|
|
|
|
|
|
|
|
- 10). How Can I Be Approved For A Low Rate Credit Card? By : Mike Singh
When applying for a credit card you may come upon what is called a low rate credit card, what is this exactly and how can it help you? First of all you should know that a low rate credit card is usually an excellent way to go when applying for a credit card. Find out more...
|
|
|
