what is 401K?

Question

just curious. im a young lady starting in this world and i have no freaking clue what that is!!

what are it's benefits?

Answer 1

The number and letter is a reference to the actual code (presumably tax code, although right now I don't recall) which permits people to set up retirement plans in conjunction with their employers. The employer and the employee both put in money, and it is invested in any number of ways. It will make plenty of money in the long haul, so if you are young this is an excellent investment. The income, including your own contributions, the employers' contributions, and the profits -- remains untaxed until you retire. At that point, you will presumably be in a sufficiently lower income tax bracket, where the taxes you pay on the money as you withdraw it (usually "rolling it over" into a more liquid form of investment) will be much less than you would have paid when you were earning it.

The other thing I see it as is an acknowledgment that Social Security benefits alone are not enough to live on when you retire. Think about that: it is now necessary for every working person to consider some additional source(s) of retirement income, because it is generally acknowledged that you will not be able to survive on what you get from Social Security.

All of which gets very scary as I approach my 60th birthday.

Answer 2

Basically, a 401(k) is a retirement savings plan. You have a portion of your paycheck deducted BEFORE taxes and have them invested into your plan. Since pensions (being paid by your company when you retire) are pretty much non-existent, and Social Security will probably not be able to cover retirement costs, it provides a way to save for retirement.

One big advantage is that it reduces the amount of taxes you pay today - they first subtract the amount you put in the 401(k) and then calculate your taxes. In addition, when you finally use the money out of the 401(k) when you retired, you should be in a MUCH lower tax bracket, and therefore pay less taxes on that amount (tax deferred). This is one key factor that makes it different from a typical savings account. A typical savings account is funded by post-tax dollars, and any interest earned is also taxed.

Fidelity has a great site that describes 401(k)s in greater detail: http://www.401k.com/ The bottom line is that it is a very good thing to start and contribute to, but it does requires a little bit of research to fully utilize. Another good resource would be your co-workers who are contributing; they can provides some logistical information and details on your company's plan. Even better, most companies have agreements with the investment company who handles the 401(k) (like Fidelity) that can help you understand all of this free!

Answer 3

401K is a smart move in your life if you're able to do it. Need more accurate information on this subject..... Go to the web address I've listed below.

Answer 4

retirement planing if you have the opportunity to do so take up your company on the offer especially if you are young