WHAT IS A 401(k) Plan?
Essentially, a 401k plan allows an employee to choose between taking compensation in cash or deferring a percentage of it to a 401k account under the plan. The amount deferred is usually not taxable to the employee until it is withdrawn or distributed from the plan.
401(k) Plans offer flexibility in retirement savings
Since first appearing in 1978, the 401k plan has become a very popular type of employer-sponsored retirement plan in America. Millions of workers depend on the money they have saved in these plans to provide for their retirement years. Additionally, many employers use their 401k plans as a means of distributing company stock to employees. The flexibility these plans offer creates many benefits for employees as well as employers.
Making changes with your IRA
If you have a 401k, when you change jobs you need to decide what to do with the money in your 401k account. As you consider your options, it is important that you keep in mind the tax-deferred status of these retirement funds. Paying careful attention to rules and stipulations can help you avoid taxes and penalties that can significantly dilute the amount of money you’ve saved.
There are typically four options available when a 401k plan participant leaves an employer:
• Leave the money in your former employer’s plan, if permitted
• Rollover the assets to your new employer’s plan, if permitted
• Rollover to an IRA, or
• Cash out the account (May cause significant tax penalties and payments. You should consult with your tax advisor prior to doing so).
401k and Retirement Plan Limits for the Tax Year 2017
On October 27, 2016, the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2017.
Questions about 401ks?
If you have questions about 401ks, feel free to contact a banker with National United.
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