Saving for retirement is very important. Many people are afraid of being in a vulnerable position where they are old and can no longer work, without enough money to live on. To avoid this situation, financial planners recommend that you start saving and investing for your golden years as soon as possible. Many people use 401k investments to reach their retirement goals.
Contributions for the plan are deducted from the paycheck of the employee before taxation. This means that the funds are tax-deferred until they are withdrawn during retirement. The amount that you may contribute to a plan annually is limited to a certain maximum pre-tax amount. Currently, the maximum is $17,500 as of 2013. These types of plans became popular when employers started to move away from the traditional defined benefit pension plans. Other alternative contribution pension plans include the 403(b) and the 401(a) plans, which offer higher annual limits than the 401(k).
The Internal Revenue Code that made these plans possible became law in 1978. The intention was to allow taxpayers to receive a break on their taxes by deferring a portion of their income. In 1980, benefits consultants examined this provision, which had mainly been obscure until that time, and estimated that it could be used as a method of creating simple, tax-advantaged ways for people to save for retirement.
Today, many companies offer such pension plans as part of the incentive package for working at that company. Normally, though, the employee must start making contributions before the employer matches it. If your company offers to match contributions to your plan, and this is something you would like to take advantage of, make sure that you are paying in enough funds to qualify for the maximum contributions.
Many plans allow employees to take out loans, which must be repaid with after-tax funds at certain interest rates. The interest then becomes part of the pension fund balance. The loan is not considered taxable income and is not subject to a penalty if it is paid back under the terms of the IRS Code. The loan must be for a term no greater than five years, except if it is being used to purchase a primary residence.
It is important not to make emotional decisions with your money as a reaction to events in the market. Financial advisors suggest that it is better to have an overall diversified allocation, and stick with it whatever the market is doing.
Sometimes, if a person has started saving late for retirement, they may want to catch up to reach the level they should be at. There was a law passed in 2006 that allows workers who are over the age of 50 to increase the amount of their contributions to their 401(k) plans.
Remember that most retirees draw their retirement income from several sources. These include Social Security, pension plans and other retirement accounts they may have. It can also include real estate and their own personal savings.
Contributions for the plan are deducted from the paycheck of the employee before taxation. This means that the funds are tax-deferred until they are withdrawn during retirement. The amount that you may contribute to a plan annually is limited to a certain maximum pre-tax amount. Currently, the maximum is $17,500 as of 2013. These types of plans became popular when employers started to move away from the traditional defined benefit pension plans. Other alternative contribution pension plans include the 403(b) and the 401(a) plans, which offer higher annual limits than the 401(k).
The Internal Revenue Code that made these plans possible became law in 1978. The intention was to allow taxpayers to receive a break on their taxes by deferring a portion of their income. In 1980, benefits consultants examined this provision, which had mainly been obscure until that time, and estimated that it could be used as a method of creating simple, tax-advantaged ways for people to save for retirement.
Today, many companies offer such pension plans as part of the incentive package for working at that company. Normally, though, the employee must start making contributions before the employer matches it. If your company offers to match contributions to your plan, and this is something you would like to take advantage of, make sure that you are paying in enough funds to qualify for the maximum contributions.
Many plans allow employees to take out loans, which must be repaid with after-tax funds at certain interest rates. The interest then becomes part of the pension fund balance. The loan is not considered taxable income and is not subject to a penalty if it is paid back under the terms of the IRS Code. The loan must be for a term no greater than five years, except if it is being used to purchase a primary residence.
It is important not to make emotional decisions with your money as a reaction to events in the market. Financial advisors suggest that it is better to have an overall diversified allocation, and stick with it whatever the market is doing.
Sometimes, if a person has started saving late for retirement, they may want to catch up to reach the level they should be at. There was a law passed in 2006 that allows workers who are over the age of 50 to increase the amount of their contributions to their 401(k) plans.
Remember that most retirees draw their retirement income from several sources. These include Social Security, pension plans and other retirement accounts they may have. It can also include real estate and their own personal savings.
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