401k plans are spoken about very frequently in the US, and represent a potentially very tax efficient manner for money to be set aside for the future. This video introduces what 401k plans are – building on the concepts of taxes and compounding, providers and users of capital, principles of taxation, mutual funds and even dollar-cost averaging….(read more)
LEARN MORE ABOUT: 401k Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
What is a 401k Plan?
When it comes to saving for retirement, the options can seem overwhelming. One popular choice is a 401k plan. But what exactly is a 401k, and how does it work?
A 401k plan is a retirement savings account that is sponsored by an employer. It gets its name from the section of the Internal Revenue Code that governs it, specifically section 401(k). The primary advantage of a 401k plan is that it allows employees to contribute a portion of their salary on a pre-tax basis, meaning that the money is deducted from their paycheck before taxes are taken out. This provides an immediate tax break, as your taxable income is reduced by the amount you contribute to your 401k.
Contributions to a 401k plan are made through payroll deductions, and most employers offer a variety of investment options for the funds, such as mutual funds or index funds. The money in your 401k grows tax-deferred, meaning you won’t owe taxes on the earnings until you withdraw the funds in retirement.
One of the greatest benefits of a 401k plan is the potential for employer matching contributions. Some employers offer to match a certain percentage of their employees’ contributions, essentially giving them free money towards their retirement savings. This matching policy can vary widely, with some companies matching dollar-for-dollar up to a certain percentage of the employee’s salary, while others may match a smaller percentage. Employer matching is an excellent incentive to contribute to a 401k plan, as it can significantly boost your savings over time.
Another advantage of a 401k plan is its portability. If you change jobs, you have the option to roll over your 401k into another qualified retirement account, such as an Individual retirement account (IRA), or a new employer’s 401k plan. This allows you to continue growing and managing your retirement savings without incurring any penalties or taxes.
However, it’s important to note that there are also some limitations and regulations surrounding 401k plans. For instance, there are annual contribution limits set by the IRS, which may change from year to year. In 2021, the maximum an individual can contribute to their 401k is $19,500, with an additional catch-up contribution of $6,500 allowed for individuals over the age of 50.
Another consideration is that funds withdrawn from a 401k before the age of 59 ½ may be subject to a 10% early withdrawal penalty. There are some exceptions to this penalty, such as financial hardship or using the funds for a first-time home purchase. However, it’s generally advisable to leave the funds untouched until retirement to fully benefit from their growth potential.
In conclusion, a 401k plan is a retirement savings account that offers tax advantages, employer matching contributions, and portability. It allows employees to set aside a portion of their salary for the future, reducing their taxable income in the process. While there are some limitations and regulations to consider, a 401k plan is an effective and popular option for individuals looking to secure their financial future.
Thanks for keeping it simple and not filling the video with fluff
Blink!
i have no idea what u just said
Idea is to pay lower tax in retirement as less (certainly other) income. Fees do have to be looked at closely and for example passive/index funds often a good idea in developed markets. The tax saving at time of working is clearly a big plus and idea is not to put money in at once, nor to take it out at once. The 401k plan is perhaps best seen as a way of saving for long-term with mutual funds in a tax-advantaged manner.
Dude, President Clinton and Soros wanted you to give Marx a chance. Go red capitalism, the real and original capitalism out there!!!
One of the most stupid financial suggestion ever. It is like giving money to fat Marx, so he decided for you! instead he goes out and tried and try to destroy capitalism…STUPIDEST thing ever! contributing to a central decision, if it fark as it will and shall…you are also fark. If not, then you get like 10-20%, maybe if the buyer decided to pay that price while those chums double or triple your actual monies. And he tricked you in the name of anti taxation or save on taxation.
@bonfirejovi Thank you for the idea – will put on list for sure – one of the cons would def. be that it is illegal in many countries and you can go to jail but it is an interesting topic especially with respect to insider (management) selling – thank you very much and thank you for interest – Michael.
@jvswerbo the market still has not gotten to the same level it was when i was in it. So regardless of the gains it's made so far, the real value has not been achieved.
I invested it in my own business and will never work for another human, for payroll, ever again in my life.
I tried to answer this question here there is a character limit that made this impossible – I have put and reply on the saving and investing forum – I hope that helps – see also videos on taxes (and principles of taxation), retirement plans and compounding please. Best regards, Michael.
did you make this video just for me by the way? or was it on your agenda anyway?
I took out my 401k it was gushing money. Even with the losses, they still required it be taxed. It goes against the logic of "income" if you suffer loses. The basis of the law was for an increase in value. with no increase, there should not be a tax on the return. So for pulling the money out, there was a penalty and taxes on top of the losses.
Well the 401k my wife had went from, 45 grand and when the slump happen in 2008-2009.
16 grand and lowering so we took this out and got a home, the 401 was never going to recover upon investment in the stocks that was on the plan.
We had a choise to see the stock to crash or walk away with something, but we had loss also.
man thanks for your help,but i do not agree with a system that doesn't guarantee my hole savings back and its to dangerous to save your money for all those years because of the decrease in value of the dollar that industrial era is now over i could save 40000 dollars and get 15000 in return after all those years and you have to admit that a reality. The money is an exange tool it's flow agent and it have to flow or you'll lose many oportunities… thanks
70 and a half
that sucks i am in australia and we were annoyed when they just lifted our retirement age from 65 to 67
In general, an employee must be allowed to participate in a qualified retirement plan if he or she meets both of the following requirements:
– Has reached age 21
– Has at least 1 year of service
Many plans do not have a minimum age but only the above affects the fact that employees must be allowed to join. Hope that helps, best regards, Michael.
thank you, you have been helping me throught my investment course. By the way, you look really like a banker I fancy. 🙂
Thank you very much.
Thank you for the comment – I hope you enjoy the channel.
Thanks for that.
Nice video, thanks!
Hey Thanks for taking the time to explain this.
First comment, first viewer, first rater.
I'm number 1. 🙂