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 401K
Investing... Perhaps this is too simplistic or overdone
for some investors, but I cannot stress it enough.
There is no better way to save money, plan for retirement
and reduce your tax bill than by participating
in a company-sponsored 401k plan. 401k
simply refers to a section of the IRS code and it is often
shown as 401(k).
Ted
Benna, the founder of the 401k plan, may have found the
great bridge between the investing
haves (the wealthy) and the modern day middle-class
investor. Mr. Benna stumbled upon the
code in 1980 while trying to help out his middle-class investing
clients, setting up a payroll deduction
plan based upon his interpretation of the IRS code.
Congress has since modified his idea with some limits,
but the essential idea is the same and we are better
for it.
Why?
401k
plans are good for employers and employees. Employers
now can concentrate on running a business and focusing
on profit, rather than managing a pension plan.
Employees can build a significant retirement income
through the process of compounding interest and tax
benefits. Employees are also free to move from
company to company or start their own business and keep
control of their own retirement.
So
what are the benefits of 401k plans?
1.
Dollar-Cost Averaging - 401k plans are invested at regular
intervals by payroll deduction. This helps force
you to save, and it smooths out the bumps inherent in
any futile attempt to time the stock market.
2.
Employer Matching - Most, but not all, employers will
match a certain percentage of the funds that you contribute.
This is free money!
3.
Tax Benefits - 401k
plans allow individuals to invest up to the current
federal limit (last time I checked it was $10,000 per
year), and the interest earned is tax-deferred and continues
to grow until you retire.
4.
Compound Interest - Start saving just a little bit each
and every month and you can build a sizeable fortune
over time. (Click
here to see how Anne Scheiber, a modest woman, built
a multi-million-dollar nest egg by methodically investing
over time.)
What
are the down sides?
1.
Withdrawal - Don't plan on removing your money until
you are 59 1/2 years old or you can face a stiff penalty
of 10 percent. Plus you'll have to pay taxes on the dollar
amount withdrawn.
2.
Investment Choices - Your investment choices may be
limited to a handful of mutual funds.
Conclusion.
Check
with your company's human resources department or the
administrator of your company's 401k plan and get started
now.
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