02.05.08
401k Account Facts
There are many options to choose from when saving for retirement. One of the more popular options available today is the 401k account. A 401k account is simply a retirement account that is funded by a participant’s employer. The funds are usually invested into mutual funds or into the shares of company stock.
A 401k account falls under the category of a defined contribution account. This means the employee will contribute a defined amount to a participant’s account. The defined contribution account is different than the defined benefit account, which includes such retirement plans as pensions. In the case of pensions, a set benefit amount would be disbursed monthly upon retirement. However, 401k accounts dole out a lump sum upon retirement.
The trend in retirement savings is gradually going more towards defined contribution accounts, as most companies are saving money offering these 401k-like plans. Although roughly half of the American population has some type of retirement savings, such as a 401k account, many do not utilize all the benefits available to them to make it worth their while. The advantages of having a 401k account are many, including having the company match contributions, being able to withdraw funds if deemed necessary, and having the headache of investing put into the hands of professionals. However, these benefits can be negated if individuals don’t begin contributing to their own 401k account soon after starting a new job, contribute too little, or choose not to participate at all.
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