Saving for Your Retirement: 401(k) Plans

Key strengths

  • You receive “free” money if your contributions are matched by your employer (subject to your plan’s vesting schedule)
  • You decide how much to save (within federal limits) and how to invest your 401(k) money
  • Your regular 401(k) contributions are made with pretax dollars
  • Earnings accrue tax-deferred until you start making withdrawals, usually after retirement
  • Your Roth 401(k) contributions (if your plan allows them) are made with after-tax dollars; there’s no up-front tax benefit, but distributions of your contributions are always tax free and, if you satisfy a five-year waiting period, distributions of earnings after age 59½ or upon your disability or death, are also tax free.
  • You may qualify for a partial income tax credit
  • Plan loans may be available to you
  • Hardship withdrawals may be available to you, though income tax and perhaps an early withdrawal penalty will apply, and you may be suspended from participating for up to six months
  • Your employer may provide full-service investment management
  • Savings in a 401(k) are exempt from creditor claims in bankruptcy (but not from IRS claims)

Bear in mind…

  • 401(k)s do not promise future benefits; if your plan investments perform badly, you could suffer a financial loss
  • If you withdraw the funds prior to age 59½ (age 55 in certain circumstances) you may have to pay a 10 percent early withdrawal penalty (in addition to ordinary income tax)
  • The IRS limits the amount of money you can contribute to your 401(k)
  • Unless the plan is a SIMPLE 401(k) plan, a safe harbor 401(k) plan, or the plan contains a qualified automatic contribution arrangement (QACA), you may have to work for your employer up to six years to fully own employer matching contributions

Investing for Retirement

Keep in mind…

  • A well-diversified portfolio can help balance risk
  • The earlier you start investing, the more you can contribute over the course of your working lifetime
  • By starting early, your investments will have a longer period of time to compound
  • With a longer time frame, you will have a larger choice of investment possibilities

What to do…

  • Assess your risk tolerance
  • Determine your investing time frame
  • Determine the amount of money you can invest
  • Choose investments that are appropriate for your risk tolerance and time horizon
  • Seek professional management, if necessary



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Not Insured by any Federal Government Agency | May Loose Value Including Loss of Principal