Time goes so fast, things change quickly, and with every shift of months and years we have no guarantee what the tomorrow might brings us, so it’s important that we take care of our future while we are young and able. Nowadays, many different investment schemes and pension plans are being offered by companies, each claiming to be better than the other. But, while these financial plans compete with one another, many companies adopt the more popular 401k investment plan for their employees’ retirement plans. 401k investment plan is a special investment account being funded directly from employees payroll account. The amount is deducted from the gross income and in turn invested into several ways like stocks, bonds, mutual funds, equities and other forms. The main benefit of having a 401k investment is its favorable treatment when it comes to tax deduction. Unlike other form of investments, the 401k investment plan has no capital gains tax, dividends or interest deduction until the fund is withdrawn.
This means that any amount you have invested will remain intact and without deduction as it multiply until you decided or reach a payout making it possible to earn more as it stays longer. Of course the 401k investment helps us lessen our taxable income too since it will be deducted on the payroll before withholding any taxes. Some companies nowadays, in an effort to keep their brilliant employees loyal to the company, are offering a percentage matching based on the 4% contribution depending on the length of employee’s service.
For instance, an employee that has a total of 36 months or less in service to the company will get around 25% matching for the 401k investment and a 50% match-up is given to employees with tenure of more than 36 months up to 60 months. Employees of more than 60 up to 120 total months will get around 75% and a 100% or more for employees with more than 120 months of service. Another important feature of a 401k retirement plan is its flexibility when choosing how your money will be invested.
Choosing whether to invest your money in equities or short-term bonds is entirely up to you. If you want to minimize the risk and ensure profit, it is recommended to invest on short-term bonds, but if you are a more aggressive type or person willing to take the risk, you can opt for equity investment since it yields higher profit and long-term wealth. The employee also has the ability to decide the amount of money to be invested in his plan, unlike other pension plans where the company sets the amount of investment; 401k gives its investors the choice of how much money they are willing to invest on their plan. If you want to leave your job, don’t worry about your 401k investment because it won’t go to waste.
Unlike other investment plans, where you’ll have a hard time if not allowed to roll over your funds, you generally have several options in 401k investment. Leave your investment to the company’s administration and just pay a small charge for the record keeping and account management, roll it over to the new company’s 401k plan, move your funds into an IRA or Individual Retirement Account or just cash out the money. Cashing out the funds however will cost you to pay the taxes and the penalty fee of 10% or more.