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Basics You Must Know About 401k

These days, many people seek for more ways on how they can save for their future so by that, their retirement will be less problematic and more convenient. In the US, employees have got the option of allocating portion of their salary to their retirement savings plan via 401k that’s initiated by employer. It is essential to know what this is about, the benefits that the employees are going to get including the 401k contribution limit.

The idea behind 401k plan is that, it is a savings retirement plan that may be used for investments of mutual funds, stocks or just any other money making opportunities. With this, when the amount you invest has matured, you will start generating money in the future for your savings because it is compounded until the time or age that you became eligible for claiming it. Usually, this is when you reach 60 years old.

There are certain situations to which you can withdraw it earlier than expected however, you may face taxes and penalties for doing such. On the other hand, you can be exempted from these penalties so long as you have valid reasons for such like permanent disability and so on. Upon death of the contributor however, the beneficiary could claim it for an early withdrawal.

Keep reading to discover other benefits of 401k plan.

Number 1. For the time being that the employee is making their contributions, it is their salary that will be taxable and not the amount they are contributing to their plan.

Number 2. Employees are going to benefit more because part of their benefits, the employer or company has to match the contribution with a percentage of the contribution.

Number 3. Employees can also take loans from their 401k investment which comes with interest of course.

Number 4. It is possible for employees to transfer their contributions to a new employer or to just about any legible retirement account.

Today, the maximum amount is $18,000. But if for instance that you are 50 years old or older, then you will be given with a chance to catch up for the max of 18000 dollars but may be limited to 5000 dollars annually. There are also special rules that are governing contribution limits of employees who got high compensations where they are regulated from maximizing the contributions they make to their 401k plan.

It is necessary to have ideas of 401k contribution limits and at the same time, know that the catch up limits are changing and will depend on the inflation rate and to the cost of living adjustments.

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