What exactly is a 401k?

Question

I just started my first real job and I just got a letter saying that I am now eligible to enroll in 401k, I don't know a single thing about what that is or what it means, and do you recommend it? ( please use layman terms)

Answer 1

It's a private retirement fund, which is in addition to anything you may eventually get from social security. You put in money, your employer puts in money, and the money is invested for you. Mine was in mutual funds. Usually something moderately conservative in the way of investments. Anyway, so long as it stays there, you do not have to pay taxes on it as income. When you reach 59 1/2 years old, you can start to use it. Typically, you rollover (have it transferred without touching the money yourself) to an IRA in a bank or something where you can use it when you need it, but leave it continuing to make interest in something pretty conservative until you need it. What you take out is taxed as income, but at a lower rate now because you are retired.

My 59 1/2 birthday was last Wednesday. I am officially retired! (Going to be a short retirement; I'm opening a bookstore in Boulder Creek, California.)

Answer 2

TYPES OF 401(k) PLAN INVESTMENTS

The typical 401(k) plan offers participants the choice of a variety of investments, and in many plans this choice includes investments from differing categories of financial instruments. (The selection of investment instruments influences the magnitude of fees imposed on 401(k) investment accounts, as will be discussed further in Section III.) Listed below are these investment choices. This is followed by a discussion characterizing these investment choices.

· Mutual Funds

-- Retail Mutual Funds
-- Mutual Fund Windows
-- Institutional Mutual Funds

· Stable Value Accounts
· Company Stock
· Money Market Funds
· Self-directed Brokerage Accounts

CHECK OUT 401kfocus for frequently asked questions by category.
http://www.401kfocus.com/401k_questions.html

Self employed 401k at http://www.stockrhythms.com/self-employed-401k.htm
Self employed 401k plans, also known as the Solo 401k, are benefiting the small business self employed and are a fantastic tool for retirement investing.
As a self employed business person, you realize the importance of financial retirement planning. A self employed 401k retirement plan could be the plan for you and/or your spouse!
Is a self employed 401k a plan you qualify for? If your business employs only you and your spouse in the following business types, you probably qualify

401k retirement plan http://www.residual-rewards.com/401k.html
A 401k is a defined contribution retirement plan that allows employees to have part of their pre tax pay deducted from their paycheck and put into an account that will be held tax exempt until such time as the money is actually used. In some cases, the employer agrees to match each dollar that the employee contributes to the 401k plan, up to a certain percentage that the employer determines, with a contribution to the account. There are two basic types of 401k plans, a bonus or profit-sharing plan, and a thrift plan.

What information is my employer required to provide me regarding my 401k?

http://www.tsfg401kadvantage.com/401k_questions.html
Legally, all a participant is required to receive is a Summary Plan Description, a Summary Annual Report and an annual statement. You might not receive a prospectus for every fund offered in the plan, but if your company's stock is offered in the plan you must receive a prospectus (or prospectus substitute) for that. Luckily for participants, most plan sponsors provide participants a lot more information than they're required to. Keep in mind too that often if you need more information all you have to do is ask.

Answer 3

It's a retirement investment fund that is offered by employers. Think of it as a savings account. Depending on their guidelines there is a certain percentage that you could deduct from your check that will go into this account tax deferred- you don't pay taxes on this money but earn interest! (This could lower your tax bracket when its time to file your income tax). From that money that you put away into your 401K your employer will match your contribution by a certain percentage. Meaning if you put $10 into the account your employer will put $10 of their money into your account. Once you reach retirement age you could withdraw from this account without incurring any penalties. You will not pay taxes on this money and you will earn interest for many years. I highly recommend investing in 401K.

Answer 4

401K is a retirement account you can set up for yourself, and usually the employer will match a certain percentage of what you put in each payday. In other words, if you contribute 3% or your wages, and your employer matches your contribution 100%, then you have essentially saved 6% of your paycheck.

Be careful, if you quit and withdraw it, you pay a big penalty. DO NOT TREAT THIS AS A SAVINGS ACCOUNT. It is for retirement.

Answer 5

Snvffy's answer is the best so far except that if you quit you do have the option of ROLLING IT OVER into another 401k fund w/o the penalty he mentioned. By rollover they mean an immediate r
reinvestment of whatever is withdrawn from the cancelled fund

OOPS. it took me too long to type my answer, because all those after snvffy's answer are good too..

Answer 6

It is called a Retirement fund and your company might add 3% of whatever you contribute to it.Go and see the accountant office at your business or just ask someone at work. Definitely put some $$ away for the Golden Years!!

Answer 7

A retirement investment fund.

Answer 8

Its when a company literally gives you $401,000 when you retire. I know the job I work at, after you work for them for 20 years they will give you $401,000 to retire.