If you’re changing jobs soon (or already), here’s something new to consider: your 401(k) plan. This type of retirement account allows individuals who are working to contribute pre-tax dollars into their retirement accounts. The downside is that these plans require employees to manage them themselves without much guidance from their employers. That being said, you should at least know what questions to ask before signing up for such a program.
Receive assistance for your 401(k) plan from financial experts
A 401(k) plan is a type of retirement savings plan offered by employers. These plans allow employees to save money tax-deferred and often match contributions at work. Employees may contribute their own pre-tax income, and companies then match these amounts up to some amount. An employer’s matching contribution can vary based on the number of years an employee has been employed. After contributing enough money, the funds can be withdrawn tax-free and eventually become part of an individual’s taxable account.
Brandi Tafoya from Five Rings Financial has helped clients ensure they get the services they need and deserve. Their team of professionals is able to provide the guidance you need to maximize your retirement savings and minimize potential tax liabilities.
Who should have a 401K Plan and how does it work?
Any company providing employment benefits worth over $19,000 annually is legally obligated to offer its workers a 401K plan. If they don’t, they could face fines or legal action. Employers offering 401K plans are also responsible for ensuring the plan is properly set up, including setting adequate funding levels.
In order to qualify for a 401K plan, you must first enroll in a program provided by your employer. You’ll need to provide basic information about yourself (such as name, address, and phone numbers), along with certain documents to verify your identity and eligibility.
Once enrolled, you’ll start receiving statements detailing how much you’ve contributed and what was matched by your employer. When you retire, you’ll receive distributions from your accumulated balance, depending on whether you’re withdrawing them before age 59 1/2 or after. Any withdrawals taken between ages 55 and 59 1/2 will incur a 10 percent early withdrawal penalty.
Why do I Need to Set Up My 401K and Can it Help Me Pay Off Debt?
Setting up a 401K plan is a great way to save for retirement. Since you won’t pay taxes until you begin taking out distributions, you can invest without the fear of losing money. By investing in stocks, bonds, mutual fund investments, real estate, or any other investment, you can build wealth while saving for future goals. In addition to helping you prepare for retirement, a well-designed 401K plan can help protect against layoffs and unemployment.
If you’re planning to take advantage of a 401K distribution plan to pay off debt, make sure you understand the rules around loans and borrowing.
Generally speaking, if you borrow money using your 401K plan, you’ll owe taxes on those earnings. However, you can reduce the taxes owed if you use proceeds from the loan to buy financial instruments like treasury bills or certificates of deposit.
Before you start your job search, make sure that your existing plan has all of the features you need to move forward successfully. Find out more about what you should expect when you change jobs by contacting Five Rings Financial. They’ll help you with any financial plan you are looking to create, and they can help you ensure everything goes smoothly.