c Easy and convenient payroll deductions. Contributing to any savings plan before you actually receive the money is one of the most painless ways to invest. When you join a 401(k), you decide (up to a specified maximum) how much will be withheld from your paycheck and contributed to your plan
More and more employers are offering defined contribution 401(k) retirement plans to their employees. This popularity may be attributed to the fact that 401(k) plans are generally less costly for employers to maintain than traditional defined benefit pension plans.
A 401(k) allows participating employees to elect to defer a percentage of their pay each month into the plan, up to a 2008 maximum of $15,500 on a pre-tax basis. Participants age 50 and older may make “catch up” contributions of up to $5,000 in 2008. The amount will then increase by $500 periodically based on the cost of living increases.
In addition, many employers match employee salary deferrals in some way. Employer contributions, along with those of the employee, are placed in a special retirement account for the employee where they have the potential to grow on a tax-deferred basis until retirement. Plan participants choose how they want to allocate their assets among the investment choices offered by their plans. Employees’ contributions are always their own, and employer matching funds become vested (owned by the employee) after remaining in the plan for a specific number of years.
Some of the advantages of contributing to a company’s 401(k) plan include:
c Easy and convenient payroll deductions. Contributing to any savings plan before you actually receive the money is one of the most painless ways to invest. When you join a 401(k), you decide (up to a specified maximum) how much will be withheld from your paycheck and contributed to your plan