What is a 401(k) Plan?

A 401k plans is the most popular type of retirement plan used today. They can be a powerful tool in promoting financial security in retirement and are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers.

A 401(k) is a type of retirement plan that allows private sector employees to save and invest for their own retirement. A 401k plan is generally funded with your before-tax salary contributions and, oftentimes, matching contributions from your employer.

The federal government established the 401(k) in 1981 with special tax advantages, to encourage people to prepare for retirement. They get their catchy name from the section of the Internal Revenue Code which established them, section 401(k).

It is important to keep your eyes on what amount you are allowed to contribute to your 401k account each year. There are two different 401k contribution limits you need to be aware of. The government sets the limit allowable and the employer sets their own 401k limits for their employees.

 

Posted by Ardent Editor on Feb 21 2007 in 401k & Company Plans

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