(5) 401 (k)s & Company Plans
It is another popular & best retirement investment options to secure your old age. In US, Employer-sponsored plans, including 401 (k)s & 403 (b)s, are basically defined-contribution plans. These plans are meant to provide automatic employee’s contribution through payroll deduction each pay period.
Employees are free to decide the percentage amount of their salary they are willing to contribute & then deduction is done automatically from each paycheck.
Sometimes, your employer may also contribute to the plan. The contribution limits is usually set by Internal Revenue System (IRS). It is revised periodically on the basis of cost-of-living index.
The type of employer-sponsored plan offered by employer is largely dependent on company’s structure such as:
(a) 401 (k)s: offered to corporate employees
(b) 403 (b)s: offered to employees of public education & most nonprofit organizations
(c) 457s: offered to state & municipal employees & certain nonprofit organizations
(d) Thrift Savings Plans (TSPs): offered to federal employees
Employee can also decide on the investment option from a variety of available choices such as mutual funds, stocks, bonds, & guaranteed investment contracts.
But, if you don’t like investment options provided by your employer then you can transfer a percentage of your plan into another retirement account i.e. a partial rollover.
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