Broker Check

Facts About The 401k That Everyone Should Know

| March 13, 2018
Share |

Starting your own 401k at a job can be overwhelming. You’re learning to prepare for your future and what you should expect when you retire. While you may be a few years or a couple of decades from retirement, a 401k will help you prepare for what’s to come. Most Americans do not save for their future and are even unable to afford an emergency that can cost them a few hundred. While saving might not be at the forefront of your mind, by contributing to a 401k, you will live comfortably in your later years. For further information about retirement planning and preparing for your future with a 401k, contact Gate City Advisors.

Specifics About 401k Plans

In How To Get The Most From Your 401k and What Is A 401k?, we went over what you should know about a 401k and how you can get the most out of these retirement plans. Now, we’ll be going over some specifics that you should know to accurately prepare you for retirement. These facts will propel you toward a more comfortable future.

The Early Trends

Initially, 401k retirement plans started because companies wanted to supplement pension plans. When the 401k plan was initially implemented in the late 1970s and early 1980s, the early trends were focused on improving the rates for savings for the average American. The primary focus was on the evolutionary trends that were focused on salary deferrals and non-discrimination testing, which is what draws in more companies to have retirement benefits for the employees there. Employee savings was an early draw of 401k plans because people wanted to improve the retirement outcomes for employees as well as the savings rates. In 2006, the Pension Protection Plan was enacted and employees savings were further enhanced due to auto-enrollment and auto-escalation.

The Biggest Drawback

With everything that’s beneficial, there’s always a drawback. However, the drawback for 401k plans isn’t as big as some other savings plans that are available for retirement. The biggest drawback for participants in a 401k is the plan fees and the limited investment options. While other retirement plans might allow you to invest in exactly what you want, a 401k has limited options. In addition, you’ll need to pay a plan fee, which, while not expensive, isn’t necessarily something you really want to deal with when it comes to trying to save for your future.

The Contribution Limits

The contribution limits changed in 2017. Now, the maximum amount of money that you can put into a 401k plan is $18,000. If you’re over 50 years of age, then you’ll be able to play catch up with contributions of up to $6,000. In addition, in most companies, employers will include non-elective contributions, profit sharing contributions, and matching contributions. This means that even though there’s a contribution limit to your 401k, you still can have your amounts matched if your employer allows that option.

The Rules Of Distribution

Another fact about 401ks is that there are distribution rules. Distribution rules are specifically geared toward 401ks in comparison to what applies to IRAs. The money inside a 401k will be withdrawn under some conditions. The first is when you reach retirement or you separate from the employer. Another way that you can access your 401k is by disability or unfortunately, death. Withdrawing from your 401k also includes reaching an attainment age of 59 ½ years, experiencing hardships under your plan, and the termination of the plan.

Rollover

Another fact about 401k is that if you leave your job, then you have the option to either take the money with you to your next job and add onto it or you can put it into an IRA. An IRA allows you to have more options for your retirement. It is a form of a retirement plan that’s more for the individual. An IRA can offer tax advantages for you as well as savings for your retirement. At Gate City Advisors, we can walk you through what an IRA is in comparison to what a 401k can do for you.

Contact Gate City Advisors to speak to a professional about your retirement. We look forward to helping you excel at saving!

Share |