If you are planning for your retirement you might want to consider 401k retirement plans. It is a good investment in particular if your company that you work for also invests money into the plan for you. An example is if I choose to enroll in my companies 401K retirement plan, my company will invest a matching bonus of up to 4% of what I put into the plan myself.
So if I put into the 401k plan, $2k then my employer will add an additional $80 every time I contribute up to $2k. If you put less into the plan then you get less from your employer. Some employers contribute more money to match yours than others. You should definitely ask your employer about their matching options.
Other Benefits of the 401K vs. Other Retirement Options:
The 401k can roll over unlike IRA’s and other investments. This is good if you switch jobs frequently or if you do not know what to do with your 401k money between jobs. This means that you can transfer it to your new job if they have a 401k plan. You can also choose alternatively to roll it over into an IRA if the new job doesn’t have a 401k package. If you have used your new jobs limit up, this is known as a 401K limit; which is either set by your employer or the government if the bosses didn’t set it up.
The current 401k contribution limits for last year that are set by the IRS is $17,500. In addition to the $17,500 if you have not contributed the previous year’s maximum you can contribute even more into the plan up to an additional $5,500 but only if you are 50 years old or older. This means that the total is $23k a year that you can contribute according to the IRS. If your employer has set a 401k limit, it usually means that is when their matching contributions end for the year. However, you can still contribute to the plan until you reach your maximum by the IRS usually.
The major downfalls of the plan are that if you do a 401k withdrawal you will have to pay all the tax on the money if you fall below the age of 59 ½. Plus you will have to pay a 10% penalty on top of that. So unless you need to withdraw from your account, it is obviously not advised to do so.
What can I do if I want more money or if I am self-employed?
If you fall into one of the two above categories and you can afford to put more money into the plan then you might want to consider a self-directed 401k plan. This plan is great for the self-employed or those who bosses actually have it available. This plan lets you control what type of investments and where you want to put your money into through each step of the plan. This is the only option for the self-employed who wish to use a 401k instead of an IRA or other investment options.
The same rules apply for the self-directed version vs. the normal 401k though. So once again, don’t withdraw unless you absolutely have to or you are over the age of 59 ½. The same limits are set forth by the IRS as well for the different contributions. Manage your 401k Investments and choose your investments wisely to get maximum benefits after your retirement.
