401(k): What It Is, and How it Can Help You

401(k) plans have grown to become the most popular type of employer-sponsored retirement plan in America. Millions of workers depend on the money that they have invested in these plans to provide for them in their retirement years.

401(k) Explained 

 A 401(k) plan is commonly viewed as a key benefit of the job, and few other plans can match the relative flexibility. This plan is simply a retirement savings account allowing employees to divert a portion of their salary into long-term investments. The employer may match the employee’s contribution up to a limit. Your financial security is extremely important, which is why you must ask the important questions today, to plan for your ideal tomorrow. 401(k)s help you reach your retirement goals and keep up with the pace of life changes. Private client insurance services can determine what you need for your unique situation. 

Investment Options

Companies offering a 401(k) plan generally offer employees a choice of several investment options; which are normally managed by a financial services advisory group. 

The employee may then pick one or several funds to invest in. The majority of options are mutual funds, and they may include index funds, large-cap and small-cap funds, foreign funds, real estate funds, and bond funds. They typically range from aggressive growth funds to conservative income funds.

Note that the distribution rules for 401(k) plans differ from those that apply to IRAs. In either case, an early withdrawal of assets from either plan will mean income taxes are due and, with few exceptions, a 10% tax penalty will be levied. Money withdrawn from a 401(k) is usually taxed as ordinary income. You will also have a rollover option,  as many retirees transfer the balance of their 401(k) plans to a traditional IRA or a Roth IRA. 

Loans From a 401(k) Plan

If your employer permits it, you may be able to take a loan from your 401(k) plan. If this option is allowed, up to 50% of the vested balance can be borrowed up to a limit of $50,000. The loan must be repaid within five years. A longer repayment period is allowed for a primary home purchase.

The interest rate that you pay to yourself will be comparable to the rate charged by lending institutions for similar loans. Any unpaid balance will be considered a distribution and will be taxed and penalized accordingly.

Are you set up to meet your retirement goals?  Whether you are just starting out in your career thinking about how to best secure your future or, been working for some time and are looking to maximize your savings in an existing retirement plan, private client insurance services can show you how 401(k)s bring flourishing streams of income.

About Haughn & Associates

Founded by Michael Haughn in 1986, Haughn & Associates is a full-service, family-owned, independent insurance agency based out of Dublin, Ohio. H&A strives to provide the best possible price and unique insurance solutions across a myriad of industries, including construction, IT, Habitation & Commercial Property, Agriculture, and Engineering. Devoted to providing the best of business insurance, life and disability insurance, personal insurance, employee benefits, and bonds, H&A is proof that success lies in long-standing client relations and satisfaction. To learn more about how H&A can be of service to you, contact us at (877) 802-2278.