A 401(k) plan is a retirement account that’s sponsored by your employer. An alternative to a traditional retirement plan, it’s the preferred choice of small businesses because of its favorable 401(k) contribution limits. With a 401(k), you can send a portion of your paycheck directly into a retirement account and your employer can then choose to match a portion of that contribution.
The following are the benefits associated with a 401(k):
- Often, you have direct control of how much you would like to invest in your account. In contrast to a traditional pension plan, a 401(k) allows you to dictate how much of your paycheck you will go into your retirement account.
- A 401(k) plan grants you a “tax-deferred” status. This means that the income you contribute is not taxed until the benefits are received or money is withdrawn from the account.
- You have the ability to choose an asset allocation of stocks, bonds, mutual funds, money markets, CD’s or a mixture these things.
- If the you transfer to another company, you can choose to move all of contributions that you made at your past company to your current company’s plan. You can even move the money to an IRA with an IRA rollover. This option is not available in pension programs.
With a 401(k) plan, both you and your employer have a great amount of freedom. A stable alternative to retirement pension plans, 401(k)s are steadily becoming the plan of choice for workers and employers alike. Need help making decisions about your 401(k) plan? Horizon Bank can help. Call or email us today for a consultation.