Retirement Services

401(k) Retirement Plans

401(K) plans are tax-deferred retirement savings plans for employees. The employer sets them up and each company has a slightly different 401(k). They are part of a family of retirement plans known as "defined contribution" plans - the amount contributed is defined by the employer or the employee. 

When you join a 401(K) plan, you tell your employer how much money you want to contribute to your account. This amount is deducted from your salary before taxes are applied, so you pay less income tax. More importantly, the money is deducted even before you have received it, making it the easiest savings plan to contribute to. Your employer may match a portion of your contribution. The money is invested by the plan administrator (on your behalf) in mutual funds, bonds, money market accounts, etc. You decide the mix of investments. They usually have a list of investment vehicles you can choose from as well as some guidelines for the level of risk you are willing to take. Since the plan is an incentive for retirement savings, there is one condition: if you withdraw the money before you are 59½  years old, you will have to pay tax as well as a 10% penalty fine to the IRS.

Why should you invest in a 401(K) plan?

There are several reasons why investing in a 401(K) plan is advantageous to you:

• The money you contribute is free from Federal and State taxes.
• Your employer receives tax benefits for contributing to your 401(K) - this is extra money for you
• There is a range of investment options and an expert does the actual investing according to your directions.
• Any gains and earnings through this investment are also tax deferred.
• You can take loans and hardship withdrawals under certain circumstances if allowed by the plan
• The money is deducted even before you receive your salary, making it easy to for regular saving & investing.

Did you know that Increasing your retirement contribution percentage by just 1% can give your future a real boost?

Increasing the amount you contribute to your retirement account by just one percent can really boost your savings potential.  Assume you are making $35,000 per year and contributing 5% of your salary to your 401k.  That equals around $146 per month.  In 20 years assuming a hypothetical rate of return of 8%, that savings could potentially grow to almost $86K.  By increasing by just 1% (which is only around $30 more per month), than can potentially mean an additional $17,176 in twenty years to your retirement!