401ks???

Totally do not understand them. can anyone fill me in. I have specific questions but maybe if I had the idea clarified then it would answer some questions.... TIA

Re: 401ks???

Pretax retirement savings is the long and short of it.

Re: 401ks???

In a nutshell, it's a retirement savings plan.

You make an election to defer a certain dollar or percentage of your paycheck before taxes that is deposited into an account for you. You can defer up to $15,500 in 2007 (it's generally increased annually). Most companies have a matching program where they make deposits to your account - it could be percentage of your deferal or your salary.

Your company probably offers a selection of funds/investments for your account - the income from these investments are also tax free until you take a distribution.

There's a lot more to it and certain things your company has in place. They should provide you with a summary plan description that will explain all the guidelines. Feel free to FM me and I'll help if I can.

Re: 401ks???

You chose how much money you want deducted from your pay to be set aside in your 401k account. (annual max is $15,500 this year)

This money is deducted on a pre-tax basis. So, let's say you chose $100 per pay period. Since it's a pre-tax deduction, you're really only having $67 taken from your take-home pay (assuming you're taxed at the amount I used in the example).

Typically, your company will offer a match. Let's say they match 50% of what you contribute.

Then, you'd have $150 put into your 401k account each pay period (but it only cost you that $67).

There will be a vesting schedule on the company match. That means "how long do I have to work here before that money is mine?" Typically, there is a 3 year vesting schedule.

Your OWN contribution is ALWAYS yours. Vesting only refers to the company's contribution.

The magic of the 401k is that you get to choose how that money is invested. Depending on how aggresive you are, it will either go into bonds or stocks. Your 401k provider should have a phone number for you to call to talk to a financial advisor to help you assess how "risky" you want to me.

The 401k is intended to be a retirement account. That means it's not likely that you can pull the money out of the account before you retire without having financial penalties assessed.

Your company may allow you to borrow against your 401k, but that's usually not the greatest thing to do with your 401k.
FM if you have any other questions!

Message edited 8/1/2007 5:37:28 PM.

Re: 401ks???

Ok...I never added $$$$ into mine bc I didnt know it existed until today. A co-worker today told me that I had to have one and that our company puts $$$ into it regardless of if we do. He said I should have been getting statements from fidelity. I moved so it is probably going elsewhere anyhow. He talked about putting the $$$ in various stockmarkets etc... I am so confused though. If mine is just sitting...would there still be $$$ in there if I never chose what to do with it?

Re: 401ks???

Re: 401ks???

even if they don't match any of your contribution, sign up. It's important you provide retirement assets for yourself.

Social security will never be enough.

Start small so you're comfortable with it and gradually increase it.

I wish I had access to a 401(k) plan years before I did.

DH did before I did and he is way ahead of me in his account. He started investing 6 years before me and our accounts are substantially diferrent.

Re: 401ks???