401k Plans What Employees Need To Know Philip
- Slides: 6
401(k) Plans What Employees Need To Know Philip Slama
What is a 401(k) plan? n A 401(k) plan lets you contribute a percentage of your salary to a trust account n The earnings in the account can grow, tax free, until you withdraw the money. n Your company may also match some of your contribution. Philip Slama
How Do 401(k) Plans Work? n Investing money through your 401(k) plan gives you the benefit of taxdeferred saving. n Some companies offer a match as an incentive to join the company retirement plan. l It means that the company will contribute a certain amount to your account for every dollar that you contribute, up to a certain limit. Philip Slama n Saving is ultra-convenient with your 401(k) because the money comes right out of your pay before you get your paycheck. n For those unexpected circumstances that can arise, many plans allow employees to dip into their account balances before retirement.
How Much Can I Contribute? n Your contributions to a company 401(k) plan are limited. n Year Limit: 2003 $12, 000; 2004 $13, 000; 2005 $14, 000; 2006 $15, 000. l After 2006, the maximum pre-tax contribution limit is indexed in $500 increments for inflation. Philip Slama
When Can I Withdraw Money? n Certain medical expenses for you, your spouse or your dependents n Purchase of a primary residence (excluding mortgage payment) n Payments of certain postsecondary education expenses for the next year for you, your spouse or your dependents n To prevent eviction from or foreclosure on your primary home Philip Slama n You must be over 59 ½ years to withdraw money from your 401 k plan
Penalties For Early Removal? n As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, hardship withdrawals are not eligible to be rolled over, and are not subject to a federal income tax withholding n You may still owe income taxes and a possible 10% early withdrawal penalty if you are under 59 1/2 when you file your annual income tax return n State and local taxes may also apply Philip Slama
