what exactly is a 401 k?

Answer 1

is a retirement plan and usually you put in a certain amount (like $20.00) per week and your employer matches or gives a certain percent. then they invest your money in stocks that you choose. Some let you borrow against it and some don't but when you retire or end your employment. You are sure to get your money.

Answer 2

A 401(k) or a 403(b) is a retirement plan into which you contribute a portion of your pre-tax paycheck (all contributions are made pre-tax, because you will be taxed on it later when you withdraw money from the account when you retire). This concept of pre-tax contributions is important. It means that if you contribute, say, $1000 a month into the account, then you are actually losing only about $800 of take-home pay. A plan management company, like Fidelity or MetLife, will receive those payments directly from your employer, and invest that money into funds of your choosing (Which a professional will help you set up so as to makimize the quality of your portfolio). 401(k)s and 403(b)s are retirment accounts; that means what you invest in these accounts is not touchable until you retire. These are GOOD plans to have, so that when there's no more social security left, you still have something to live on. IF you're young, sign up for one now and take the hit to your take-home paycheck, it will pay off in the long run. Go for an aggressive portfolio, and make it more moderate as you get older. This should maximize returns on your investments. The current limit for contributions to a 401 or 403 is $15,000 annually. If you can afford to, it makes sense to maximize your contributions now. IF you can't, then figure out the maximum you can afford, and do it.
For more information, check this:
http://www.irs.gov/retirement/content/0,,id=111422,00.html

The IRS knows all about these things.

Edit: there should be no catches if your employment is terminated. The funds in the 401 are yours. Most funds will allow you to keep your money in the 401 account indefinitely, for a small maintenance fee. When you are employed again, you can begin a process to rollover your old 401 into your new one. It's a bit of paperwork, but not painful at all. I just did this quite successfully myself.

Note that some people are saying "stock market." A well-managed 401 or 403 will allow you to invest in mutual funds. Be sure to check into this. some, like TIAA-CREF, rely on variable annuities, you generally don't want to lock into these if you have an option to go with mutual funds (such as what Fidelity and MetLife offer). Stocks are, of course, the worst of the three, since they're not well-diversified and can be volatile.

Answer 3

I am 23 and I had to find the answer to that at work this past year. My workplace offers something similar; it's a 403b, but technically the same thing. Anyway, it's a plan that you decide how much money you want an investment company to take out of your paycheck (some are before taxes, most are after I think). If your lucky, your company may even match your givings up to a certain amount! That little bit of money adds up over time, and you can retire after about 30 or so years and not have to worry. But, you should be worrying now... I'm 23, and feels good not to worry later!! good luck!

Answer 4

If your company offers a 401 K it means that you have the option of setting up a retirement plan...you can have a percentage taken from your pay each check and usually a company will also contribute to it as well. It is important to understand all of the terms of your company's 401K becasue there could be some cathes invoved...example- what happens if you quit or get fired?

Answer 5

I worked for a company for a long time, and they offered a 401 K plan. What happens is that you take a percentage of your pay and have it taken out of your check and it is put into the 401 K. There are two ways you can contribute which are the before tax way and the after tax way. The before tax way is that they take the amount out of your pay without taxing it first and then deposit it into the 401 K plan. Most of the time, a company will match your contribution.

At the company I worked for, they allowed you to contribute up to 16% of your pay to it, but they would only match up to 6% of what you put in. That way, your amount will grow. They usually invest it into stocks such as the Standard and Poor's top 500 companies or other companies stocks.

So, it builds up in your account. My company also gave us profit sharing in the form of company stock. When you retire, you can begin having money be sent to you in payments once a month or in a lump sum with a penalty. Also, you must begin taking payments at 70 and 1/2 years old, but that may have changed since I worked.

Companies will often allow you to borrow from your account and pay it back with interest to yourself a couple of times a year if you need it.

If a person had 6% of their money going into the 401 K plan and began work at 18 years old, and then retired at age 65 and they never took any money out of it, they would have over a million dollars in their account.

In my particular case, when I retired, I didn't have ANY money in mine because I took it all out with a penalty. I was only having 2% taken from me the after tax way. All I had in there was about 21.xxxx shares of stock, so they paid me for them and I got 898 dollars. It would have been in the many thousands if I had contributed most of the time I was working.

Now the difference between the after tax way and the before tax way is that if you take it after tax, you won't have to pay more tax on it at age 65+ because it was already taken out, and that will show up when you do your taxes, but if you do it the before tax way, it works like this:

Say you made 100 dollars per week, and you had your contribution of 10 dollars go to your 401 K plan.

The before tax way, you would only be taxed on 90 dollars and taxed on the other when you withdraw it or at age 65, and you will have another tax exemption because of your age, thereby making your taxable amount less than if you had the tax taken out now, so you would owe less money on your investment.

The after tax way is they tax you on the whole 100 dollars now and they contribute your 10 dollars which will not be taxed as income when you are 65. Don't forget here that most of the time, your company will match up to a certain percent of your contribution and put that percentage into your account too. If you don't touch it, you will have a pretty hefty sum when you retire.

For more information on this talk to your personnel department at work about it, and they will explain it fully to you. They will also give all the employees a booklet about it, and they will have open periods where new people can sign up. With my company, you had to be there a year first to start contributing and fully vested at 5 years.

So, your Personnel Department or Human Resources Department at your company will explain it better than I did here and will be able to answer any questions while they are at it.

I hope this answers your question about what is a 401 K plan.

Answer 6

It is a retirement plan and usually you put in a certain amount (like $20.00) per week and your employer matches or gives a certain percent. then they invest your money in stocks that you choose. Some let you borrow against it and some don't but when you retire or end your employment with that company you are entitled to your money.

Answer 7

It's a retirement plan. Money is taken out of your paycheck each pay period. Your employer will sometimes match a percentage of it as well. You don't pay taxes on this money untell it is withdrawn at retirement. You manage your account by choosing various places (useually mutual funds) to deposit this money.

Answer 8

It's a tax deferred way for you to lose money in the stock market.

Answer 9

it is a retirement plan where you put in a certain amount of money each week and then you get it back when you retire.

Answer 10

its a etirement plan, if u dont know what it is dont worry about it