How are 401k accounts funded?

Question

i am doing research for a class and i was wondering what you guys could tell me or if you had any websites to tell me more about 401k accounts. Thanks.

Answer 1

employees pick a % of each pay to put into the 401k. they pick different types of funds"aggresive low risk and depending on how they do they gain/lose $. also most compnaies match what the employees put in at the end of the year so it is split 50/50 as to who funds it.

Answer 2

roskorosk has it dead on....some additional thoughts to look at.

401k is called a pre-tax deferral. Which means you defer receipt of that portion of your compensation. Since you do not receive it you do not get taxed on it. However, you still get credit for having been paid it by social security. Even though you don't get taxed on it, your employer gets a tax deduction for having paid it. He/she must deposit it into an account in the name of the 401k plan as soon as possible after it is withheld. Depending on the plan, that account could be a checking account...doesn't matter it just has to be in the name of the 401k (keeps it out of hands of creditors). Within a reasonable period though it has to be invested for real. Where it gets invested is dependent upon the plan. Some allow particpants to invest themselves and others hire money managers to invest for them. Money managers outperform individual investors by 2-3%. If you learn anything from this paper let it be this....It is not YOUR money. The money is in a trust for YOUR benefit. There is a difference...The trust owns the money and among other things is responsible for ensuring that it stays tax deferred, that all IRS rules are followed, and that you don't get access to it before the rules allow. Much like money held in trust for a child. The trust may allow you to determine WHERE to invest it, but that's about the limit of your involvement.

There are rules associated with how much can be invested and those rules vary by income levels. The IRS sets limits and those amounts may be further limited by discrimination testing.

I could go on all day...the rules are complex and detailed. My resource manuals consist of about 8-10 books that I access each almost daily. I suggest you do a websearch on 401(k) basics and read all that you can. Doesn't matter which site you go to...they will all tell you same info.

Answer 3

They are funded with contributions from the employee and maybe the company matches a certain percent. The company usually hires an investment management company to provide investment choices for the employees. The employees can usually invest in avariety of mutual funds.

Answer 4

Investing money through your 401(k) plan gives you the benefit of tax-deferred saving. This lets you increase your take home pay and decrease your current taxable income. Remember though, your pre-tax contributions are not tax-free, they're tax-deferred, which means that you don't pay income tax on this money until you withdraw it from the plan (which should be at retirement, when you may be in a lower tax bracket). Take a look at a hypothetical chart to see how contributing to the plan compares with saving outside the plan (in an ordinary savings, or other taxable account).


2. A company match can help your investments grow

Some companies offer a match as an incentive to join the company retirement plan. It means that the company will contribute a certain amount to your account for every dollar that you contribute, up to a certain limit. The match formula can vary.

To receive the matching contribution, the plan may require that you work a specified number of years. It makes good sense to take advantage of a company match by setting aside the maximum amount required to qualify for a matching contribution. If your employer offers a matching contribution, your retirement savings have the potential to grow that much faster. In order to maximize an employer match, you might want to consider spreading your contributions throughout the year so you receive a match every month (subject to IRS limits).

3. Automatic payroll deduction makes it easy to save

Saving is ultra-convenient with your 401(k) because the money comes right out of your pay before you get your paycheck. This automatic payroll deduction helps make saving your number one priority. You don't see the money, so you're not tempted to spend it!

4. Most of your plan's investment choices are managed by professionals

Many of the investment options in your company's 401(k) plan are mutual funds. By investing in mutual funds, you place your money in the hands of a highly experienced team of investment professionals. Most funds are managed by a portfolio manager, and a global team of dedicated analysts works behind the scenes to provide in-depth research and analysis on thousands of companies, securities, and other investment opportunities. They do the work, so you don't have to.

Your plan may also include other investment options that aren't actively managed, such as index funds, funds of funds, or options other than mutual funds, such as a company stock fund or a commingled pool. Please see your plan materials for more information.

5. Most plans allow access to your contributions in an emergency

Answer 5

401Ks are funded by an employee contribution and usually a matching employer contribution. Ususally an employee can contribute say 5-10% of his earnings (pre tax) and the company will match the same (also pre tax).

Answer 6

they're funded by contributions made by the opener and usually the openers employer.......

look here http://en.wikipedia.org/wiki/401k



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