In the United States, 401(k) refers to a popular individual retirement saving scheme, which the proprietor or the person in-charge of the organization you work for sponsors. The plan allows you as an employee to keep aside and invest a portion of your monthly paycheck before the entire amount becomes chargeable to tax. Moreover, your employer also makes an equal and matching contribution to the amount you invest. You are only liable to pay any taxes on the amount you save every month until you leave the place of your employment because of old age and withdraw the amount.
Barry Bulakites is a prominent motivational speaker from America, who give lectures on various public forums and television networks in the country on the current state of the economy. In addition to this, he is also the president of Table Bay Financial Network, Inc and its principal distribution officer. He is proficient financial advisor whose expertise lies in the field of retirement planning. He consults and offers his recommendations on sustainable and lucrative retirement planning to a diverse range of clients. These include corporate enterprises, popular celebrities from the music industry and sportsperson. He says the individual retirement account(IRA) under Section 401(k) is ideal scheme for those who want to save for their retirement as soon as they begin their career. It allows them to choose whether they want to invest their money in shares, company stock, mutual funds, bonds or other sections of financial markets. He explains that its salient features are as follows:
This financial advisor says 401(k) schemes are the one of the most sought-after contribution plans, which your employer can sponsor for his/her workforce in America. The amount that your boss deducts from your paycheck to deposit into this retirement scheme is not chargeable to tax. You do not pay any taxes on monetary funds that accumulate until you actually withdraw it at the age of 70½.
Matching contribution by your employer
The most important advantage of the 401(k)-retirement scheme is that your employer has to make an equal and matching contribution to amount you deposit under this plan. This amount is also not chargeable to tax during the duration of your employment with the organization. Only when you withdraw the entire at the time of your retirement are you liable to pay taxes.
Under this retirement scheme, the income tax authorities specify every year the maximum amount of money you can contribute if you are below the age of 50 years. However, if you are above this age, you have the privilege of making additional contributions to this plan under its catch-up provisions.
Barry Bulakites says the individual retirement account(IRA) scheme under Section 401(k) are a convenient way for young people like you to save for your retirement when you are just beginning your career. Since your employer deducts the amount you contribute under this plan from your salary, it reduces your financial burden. Moreover, he/she also makes a contribution to this scheme, which equivalent to the amount you pay. You also have the option of deciding how you wish to invest this money to earn interest.