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12-14-2008, 12:25 PM
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Us payroll process
About 401K Plansffice:office" /> Definition: A retirement plan that allows employees in private companies to make contributions of pre-tax dollars to a company pool that is then invested in stocks, bonds, or money markets. What You Need to Know If you're like most people, you have questions about your 401k retirement plan. You might be wondering how a 401k works, exactly what a 401k is, or how you can revive the dwindling balance in your 401k. Read the following article and if you still have questions, please post them to the Retirement Planning Forum. How does a 401K work? If your company offers a 401k retirement plan, you are given the option of selecting the funds you choose to invest in from a list of funds provided in the 401k. Your company will provide you with a list of the funds they use for their plan and give you the opportunity to decide which you want to invest in and the percentage to invest. Your employee contribution will automatically be deducted from your pay check before taxes. Each employee can contribute up to a certain percentage of their pay into a 401k and some employers will match a percentage of your contributions. Your contributions along with any matched contributions are then invested into your selected funds. These funds will grow without being taxed and can be withdrawn when you reach the age 59 ½. At this time, you must pay income tax on the withdrawn funds. There are ways you can withdraw your funds before reaching the age 59 ½ but these withdrawals usually require a penalty along with payment of taxes. What is a 401k? A 401k is an employer sponsored retirement plan and is grouped into two categories-defined benefit and defined contribution. With a defined benefit plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. With a defined contribution plan, the plan defines the contributions that an employer can make and not the benefit that the employee will receive at retirement. A defined benefit plan usually links the benefit to the amount of service and is based on the final average salary. Employees can usually predict the monthly retirement income they might receive with this type of plan and might also be given the choice of a lump-sum benefit at retirement. A defined contribution plan is not a defined benefit so the employee cannot predict a monthly retirement income. If an employee leaves the company, they usually receive the proceeds in a current or deferred lump sum or annuity. Companies are prohibited by law from tapping into the money in their 401k. But if your company goes bankrupt and you have 401k money invested in their stock fund you will likely lose that money. What can I do to repair my declining 401k balance? The first thing you might do is to look closely at how you are investing. If you're investing heavily in your employer's company stock, you should reduce this amount and diversify your investments. Adjust your contributions to make the most of the new contribution limits. Each year you can contribute the maximum tax-deferred amount to your 401k. Your age and your company's plan policy will be deciding factors in your strategy in repairing your 401k balance. Younger persons will have longer to rebuild their retirement plan than those who are 50 or over. How should a 401k be balanced? According to Money magazine, the suggested allocations at three life stages are: Aggressive--for those with 35 or more years until retirement · 50%--large cap stocks · 15%--mid cap stocks · 15%--bonds · 10%--small cap stocks · 10%--international stocks Moderate--for those with 20 years until retirement · 35%--large cap stocks · 35%--bonds · 10%--mid cap stocks · 10%--small cap stocks · 10%--international stocks Conservative--for those within 10 years of retirement · 40%--bonds · 30%--large cap stocks · 10%--mid cap stocks · 10%--international stocks · 10%--cash 401k plans are very popular and an excellent way to plan for your retirement. As with any other investment, you do need to carefully watch your portfolio and make wise investment choices. 20 Questions You Should Be Able to Answer About Your 401k Plan How well do you understand your 401k plan? Most workers never give their retirement plan a second thought after the initial sign-up stages. They know it’s there and there is money being taken out of their pay check but most feel there are more things to be concerned with. This might be the biggest mistake a worker can make when it comes to their retirement. Your 401k should be taken seriously. It is your financial plan for the years after you stop earning a pay check. If you understand this plan and know your rights, you could stand to benefit significantly in the future. If you can answer the following questions, you know your 401k plan pretty well. If you can’t answer any of these questions, you need to arrange a meeting with your plan administrator to get the answers as soon as possible. 1. When can employees join the 401k plan? 2. Is participation in the 401k plan a requirement? 3. Can money from a previous plan be transferred into this plan? 4. What is the most that can be contributed each pay period and for the year? 5. Are there matching contributions and if so, how much is matched? 6. When are matching contributions deposited into the employee’s account? 7. When is an employee vested? 8. Are investment options available with the plan and if so, what are they? 9. Are there any advice services for investment selections? 10. How often is reallocation between investment options allowed? 11. Can the plan be accessed and managed via the Internet? 12. Are loans or hardship withdrawals permitted? 13. What is the procedure for taking a loan or a hardship withdrawal? 14. How are loans or hardship withdrawals repaid? 15. Are catch-up contributions allowed for workers over the age of 50? 16. When an employee leaves the company, what happens to the 401k plan? 17. Can a plan's beneficiary be changed and if so, what is the process? 18. Who is the contact person if there are questions? 19. Can a worker who is over age 70 ½ continue to make contributions? 20. When a worker reaches age 70 ½ are they required to start taking distributions?
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The calculator is formatted and runs in Microsoft Excel (.xls file extension) What is a 401k plan? A 401k plan is an employer sponsored retirement plan and is grouped into two categories-defined benefit and defined contribution. With a defined benefit plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. With a defined contribution plan, the plan defines the contributions that an employer can make and not the benefit that the employee will receive at retirement. A defined benefit plan usually links the benefit to the amount of service and is based on the final average salary. Employees can usually predict the monthly retirement income they might receive with this type of plan and might also be given the choice of a lump-sum benefit at retirement. A defined contribution plan is not a defined benefit so the employee cannot predict a monthly retirement income. If an employee leaves the company, they usually receive the proceeds in a current or deferred lump sum or annuity. Companies are prohibited by law from tapping into the money in their 401(k). But if your company goes bankrupt and you have 401(k) money invested in their stock fund you will likely lose that money. There are two main types of employer-sponsored retirement plans: defined benefit and defined contribution. A defined benefit plan, such as a traditional pension plan, sets the amount that the employer will pay to workers upon their retirement. In defined contribution plans, the plan sets the amount of the contributions that an employer makes, not the benefit it will pay at retirement. In 1978, section 401(k)of the Internal Revenue Code authorized a new kind of defined contribution plan that allows the employee to make pre-tax contributions to the plan. In a 401(k) plan, the employer sets up a special savings and investment account with an investment company, a bank trust dept, or an insurance company. The employee agrees to put part of his or her salary into the plan through automatic deductions each pay period. This money is deducted before the employee’s paycheck is taxed, so that it remains untaxed until it is taken out of the plan, often years or even decades later. Employers frequently match employee contributions up to a certain level, sometimes by as much as 100 percent, but are not required to do so. The money in the plan is invested into one or more funds provided in the plan according to choices made by the employee. The plans usually are intended to earn money over a very long period of time, which is much less risky than short-term investing.. Employees like 401(k) plans for several reasons. The tax deferral an obvious plus. Others popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability to choose one’s own investments. 
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