401K Retirement Plan Explained

401k retirement plans are a form of pension, which is distributed when the individual retires. In general, 401k retirement plans include contributions from the employee while they are employed. Those contributions may be matched by the employer. Contributions are generally taken from pay, before taxes are applied as an income tax.

Retirement plans such as 401k retirement plans are meant to be collected by the individual after retirement. In fact, there is a penalty for early withdrawal from the plan. However the 401k retirement plan can be used for several other purposes without penalty. The plan may be used to pay to go to college or in order to purchase a first home.

Generally when an individual makes contributions to a 401k retirement plan, they can select which types of investments will be included in the plan. They may select from a list provided by the employer or they may meet with plan administrator to discuss risk factors, as well as short term and long term investments. However, in some cases, employees are not given the option of making investment selections and the administrator simply invests the entire companies 401k in certain investments, generally those that carry a low risk.

401k retirement investment plans are a good way to ensure that the employee has an income when they retire. In addition, the money can be withdrawn in an emergency, but there will be a penalty incurred, including a large tax on the monies withdrawn.

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