401k Plan: 401(k)

401k 401(k) Chalkboard Piggybank

401k Plan Explained

In the past, the 401k plans were not a recognizable part of the US government or the IRS like they are in modern times.

A 401(k) was viewed as the original idea of benefits consultant Ted Benna. Benna had come to the conclusion that the provision may be used to generate a simple employee retirement plan with tax benefits right after Section 401(k) of the Internal Revenue Code introduced in the late 70s.

In the early 80s, the first 401(k) plans were introduced to the general public. In the following ten years, approximately 50 million employees obtained a 401(k) from their employers. In the modern society, more than 90% of private employers possess a 401(k) option included in their benefits package. They are considered one of the most common retirement vehicles within the US.

Employee’s pre-tax paycheck deductions are usually used to fund a 401(k) plan, since this is practically a defined contribution plan. You need to know that almost all 401(k) funding duty is attributed to the individual account holder, even though a few employers provide similar matching programs for individual contributions.

A 401(k) is usually provided to private, for-profit employers. Government workers possess 457(b) plans and non-profit companies may include 403(b) plans.

One of the most important limitations associated with a 401(k) would be the fact that the investment options are limited to what a plan provider offers. If you choose this plan, you won’t be able to invest in many asset classes. Most of the 401k money is placed into mutual funds.