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 United States, the employer is initiating what is called a 401k or a retirement savings plan to which employees can get to put their percentage of their salary monthly. It is essential to know what this is about, the benefits that the employees are going to get including the 401k contribution limit.
The main concept for the integration of 401k plan is, to serve as a retirement savings plan for employees in which the money may be used for investing in money making opportunities. That way, when the amount you’ve invested has grown and matured, you will generate more money in the future as your savings are compounded until the age or time you became eligible to claim 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. Unless you got valid reasons for doing so on the other hand, then you may get an exemption for the penalties. The beneficiaries of the contributor can even claim the money for early withdrawal in case of unexpected demise of the holder.
In the next lines, you are going to learn about the benefits you can get from 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. Employees are able to roll over or transfer their contributions from their past employer to the next or even to other legible retirement account.
Based on current info, maximum for this year is 18,000 dollars. For those who are 50 years old and older on the other hand, they’re given a chance to catch up on the maximum 18,000 dollar contributor but may be limited to just 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 essential to have a good idea of 401k contribution limit but, catch up limits are still subjected to change based on inflation rate and the cost of living adjustments as well.