Advertising
Advertising

How 401Ks Work

How 401Ks Work

There are lots of things we do in life because we’ve been told they’re a good thing to do. One of those in my life is putting money into a 401K retirement plan. But what does that mean? How does it work?

Lucky for you, the folks at HowStuffWorks.com have written a piece about it.

Advertising

Four things differentiate a 401(k) plan from other retirement plans.

1. When you participate in a 401(k) plan, you tell your employer how much money you want to go into the account. You can usually put up to 15 percent of your salary into the account each month, but the employer has the right to limit that amount. It might be worth your while to rally for a higher limit if it isn’t as high as you would like it to be. The IRS limits your total annual contribution to $11,000 (for 2002).

2. The money you contribute comes out of your check before taxes are calculated, and more importantly, before you ever have a chance to get your hands on it. That makes the 401(k) one of the most painless ways to save for retirement.

3. If you’re lucky, your employer will match a portion of your contribution. Your employer wants you to participate in the plan because of compliance issues we’ll talk about later. The matched amount they offer (the free money part) is your incentive to participate.

4. The money is given to a third party administrator who invests it in mutual funds, bonds, money market accounts, etc. They don’t determine the mix of investments — you do that. They usually have a list of investment vehicles you can choose from as well as some guidelines for the level of risk you are willing to take. We’ll also talk about that later.

The site is fairly ad-laden, so it’s tricky to navigate, but the content was useful. Take a look-see.

Advertising

How a 401K Plan Works – [HowStuffWorks.com]

More by this author

7 Uses for a Virtual Machine When Emailing Think Press Release Mail, BrainDump, Mail, Do Stretch Goals Matter You Had me at Insane

Trending in Lifehack

1 The Lifehack Show Episode 8: On Personal Success 2 How to Stop Procrastinating: 11 Practical Ways for Procrastinators 3 The Lifehack Show Episode 6: On Friendship and Belonging 4 Why Do I Procrastinate? 5 Root Causes And How To Tackle Them 5 The Power of Tapping into Your Hidden Creativity

Read Next

Advertising
Advertising
Advertising

Last Updated on September 22, 2019

The Lifehack Show Episode 8: On Personal Success

The Lifehack Show Episode 8: On Personal Success
In this episode of The Lifehack Show, we interview Robert Glazer, who is the founder and CEO of Acceleration Partners, and author of the book Elevate: Push Beyond Your Limits and Unlock Success in Yourself and Others.

Robert shares with us how capacity building can radically improve your life and how his new book acts as a guide to getting started.

    Robert Glazer

    Episode 8: On Personal Success

    Also available on Apple Podcasts 

    Featured photo credit: Austin Ban via unsplash.com

    Read Next