Retirement Planning And 401k  

Most financial planners recommend tax-advantaged accounts because they are familiar with the time value of money. Tax advantaged-accounts and investments such as Roth or traditional IRA’s and municipal bonds are considered very seriously today.

401k Retirement Plan:

In 1981, the congress created this retirement savings vehicle. “401k” gets its name from the section of the Internal Revenue Code. This retirement plan is a special type of account funded through payroll deductions which are pre-taxed. The funds in the account can be invested in a number of different mutual funds, assets, bonds and stocks.  The funds are not taxed on any interests, capital gains, dividends until they are withdrawn.

Benefits of 401k Retirement Plan:

There are many investment benefits of 401 retirement plan including:

  1. Tax advantage of 401k retirement plans: Interests, dividend, and capital gains are not taxed until they are disbursed. This is the primary benefit of the 401k plan.
  2. Investment flexibility and customization: the best part of 401kplan is the range of choices for employees. An individual could opt for a higher asset allocation in low-risk investments such as short-term bonds. Employees looking for a long-term benefit could place their bet on equities. There are also many companies that offer employees company stock at a discount for their 401k retirement plan.

401k Loan Features:

An employee can borrow 50 percent of their vested account balance up to a maximum of $50000. The 401k loan must be paid back over the next five years with the exception of purchases in homes. Even if an individual borrows from his account, he still has to pay interest. However, the interest one pays back into their 401k plan is tax-sheltered and the individual will get back the money in the form of qualified disbursement at retirement.

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