Retiring in Style: Basics of the 401k Retirement Plan

Why is everyone talking about the 401k?

401k plays a major role in the life of any employee. Millions of Americans depend what they have saved during their employment for their needs during retirement years. Since 1978, the plan has been among the most popular and functional employer-sponsored benefit plan.

What is a 401k?

Basically, 401k is an arrangement that gives workers the option to receive cash during their employment or setting aside a portion of it to be placed on their retirement account. There are a number of different 401k plans to choose from.  You know have the SIMPLE 401k, the Roth 401k, and the safe-harbor 401k, among others. Generally, the amount placed under the 401k account is tax-exempt and will only be taxed once withdrawn. However, with the Roth 401k, employees may opt to withdraw this without being taxed.

401k is governed by the Employee Retirement Income Security Act of 1974 and tax laws.

Normally, contributions are based on the employee’s balance and the performance of the investment plans. However, many employers now are in the practice of matching their workers’ contributions to a certain percent. This scheme is known as profit-sharing.

What happens to the funds under the 401k plan?

The funds that go under the 401k plan are invested through mutual funds, stocks, bonds, and other investment channels allowed by the law. As such, the amount in the retirement fund can go up, or down, depending on the performance of these investments.

Employees can also loan the money under their funds, but subject to restrictions. This option, however, is subject to the employer’s discretion. Companies that allow it may loan up to 50% of the employee’s retirement fund, for as long as it does not exceed $50,000. The loan is payable in 5 years. If the loan is taken to pay a family home, the payable period may be extended.

As of time of writing, the maximum amount that employees can defer to his 401k is $18,000. Those who are above 50 by end of 2017 can make up to $6,000 additional contributions. For joint employee-employer contributions, the maximum limit is $54,000.

Contact ARCHER JORDAN for More Information on 401k and Other Retirement Plans

ARCHER JORDAN can help give you light on the intricacies involved in managing benefit plans for your employees. Our decades of experience in this field allow us to better explain any difficult and complicated matter about this field. We will likewise be happy to design a customized retirement plan that will work best for you and your employees. Contact ARCHER JORDAN today at +1 888-745-0754!

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