If you’re going to be retiring in the next few years, or even if you’re trying to get your budget together so that you can prepare for retirement well in advance, you should also ask your employer about your 401k plan. The services 401k offers can keep you and your family financially safe for years to come, and will show you how to organize your money for other expenses in life as well.
Before you receive the services 401k has to offer, you should have a clear understanding of what a 401k is. This is an investment account that is sponsored by your employer. The account allows you to save a portion of your wages each time you are paid, so that when you retire, you’ll have a significant amount of money to live off of. The contributions that you make to a 401k account are tax-deferred in most cases. However, you may have to pay some penalties if you withdraw the money before a certain time. Services 401k provides also include your employer matching the contributions that you’ve made to your account up to a certain percent of your overall salary.
It’s important to keep in mind that your 401k deferred wages are not part of your taxable income. This means the money you put into the account is not reported on a 1040 document. However, the services 401k offers will allow you to count these wages when your social security payments are being calculated; the wages will also determine your eligibility for Medicare and FUTA, which are paid by your employer.
You should also be aware of the maximum contributions that you can take advantage of when you have a 401k account. For 2009, the maximum amount you can deposit into your account for the year is $16,500. If you are at least 50 years of age, you can also use services 401k to make catch-up contributions for up to $5,500. There is an age requirement for taking funds out of your account as well. You have to be at least 59 1/2 to withdraw funds, and if you have to withdraw early, there is a ten percent penalty. After you reach the age of 70 1/2, you will need to start drawing minimum distributions from your 401k account, and these withdrawals will be taxed at your current rate.
The plans that your employer offers may vary, so you should be sure to get all the details you need about services 401k when you begin employment with a company, or when there are any changes in human resources. If you want to know more about how you should invest your money for retirement, you can check out sites like www.forbes.com for more details.
