MoneyMatters101.com Home
Investing Information

3 Types of IRA's
4 Kinds of Annuities
401(k) Plan
403(b) Plan
Adolescent Millionaire
Buy Income Property
Executive Traits
Full of Bull
Get Rich Quick
Hedge Funds I
Hedge Funds II
Invest for Retirement
Investing Habits
Investing In Gold
Invest Intelligently
Investment Property
Invest/Payoff Debt
Keogh Plan
Money Lost
Mutual Funds
Mutual Fund Benefits
New Year New You
Penny Stocks
Pragmatic Strategies
Roth IRA
Roth IRA or 401(k)
Saving For College
Stock Market
Stock Market Basics
The Bond Market
The Shock Market
The Stock Market
Unnecessary Gamble


Email Us

Managing Money
Real Estate

Social Security


401(k) Plan

A 401(k) Plan is a cash or deferred pay plan that some companies offer their employees if the company has a profit sharing or stock bonus plan. In a 401(k) plan, employees are given the opportunity to invest in additional tax sheltered pay.

Contributions to the 401(k) plan generally takes the form of salary reduction deferrals although the company may offer to contribute to a 401(k) plan trust account if the employee agrees not to take a salary increase.

Under the salary reduction agreement, the employee elects to contribute a specified amount of pay to the 401(k) plan instead of receiving the wages as regular salary.

The contribution under the salary deduction agreement is treated as a contribution by the employer that is not taxable if the annual contribution limits are not exceeded.

As a result of the elective salary deferrals, the employee is allowed to defer tax on that portion of salary and get a tax free buildup of earnings within the 401(k) account.

There are limits placed on the amount of salary that an employee can contribute to the elective deferrals account that are not subject to income tax withholdings but are subject to Social Security and Medicare withholdings.

Under the 401(k) plan, laws govern the withdrawal of funds from the elective deferrals account. An employee is penalized for withdrawing funds unless:

  1. The employee has reached the age of 59 1/2.
  2. Financial hardship can be proven.
  3. The employee no longer works for the company.
  4. The employee becomes totally disabled.
  5. If the employee dies, the beneficiary can withdraw the funds.

If the 401(k) plan is terminated and all of the employees funds were pre-tax elective salary deferrals and no successor plan is instituted, the entire distribution becomes taxable unless it is rolled over into another qualified plan.

Finding strategic ways to invest and save money for retirement is paramount for everyone. It doesn't matter whether you are just entering the work force, or if you have been employed for years, it is in the best interests of all involved if you make an effort to build a nest egg to help take care of you and your family when you are no longer able to work.

If you put money in any retirement accounts, you probably have a choice between traditional and Roth: Traditional plans give you deductions now...a Roth offers tax-free money when you retire.

An employee may take out a loan on his or her 401(k) plan subject to IRS guidelines and restrictions.

Book of the Month

Advertise on MoneyMatters101.com



Accessibility Policy| Terms Of Use| Privacy Policy| Advertise with Us| Contact Us

Use of this web site constitutes acceptance of the Terms of Use.

We are looking to create more mutually beneficial partnerships. If you are interested in partnering with MoneyMatters101.com, send us your proposal.


Link to MoneyMatters101.com