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401k Retirement Plan
401k Retirement PlanA 401k Retirement Plan is a defined contribution retirement plan that allows employees to have part of their pre tax pay deducted from their paycheck and put into an account that will be held tax exempt until such time as the money is actually used. In some cases, the employer agrees to match each dollar that the employee contributes to the 401k plan, up to a certain percentage that the employer determines, with a contribution to the account. There are two basic types of 401k plans, a bonus or profit-sharing plan, and a thrift plan. A 401k plan is an employer sponsored retirement plan and is grouped into two categories defined benefit and defined contribution. With a defined benefit plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. With a defined contribution plan, the plan defines the contributions that an employer can make and not the benefit that the employee will receive at retirement. A defined benefit plan usually links the benefit to the amount of service and is based on the final average salary. Employees can usually predict the monthly retirement income they might receive with this type of plan and might also be given the choice of a lumpsum benefit at retirement. 401k A defined contribution plan is not a defined benefit so the employee cannot predict a monthly retirement income. If an employee leaves the company, they usually receive the proceeds in a current or deferred lump sum or annuity. 2004 Contribution Limit401k Contribution Limits 20072007 401k Contribution Limit: $15,5002007 Catch-Up Contribution Limit (only for those over 50 years old): $5,000 401k Retirement Plan
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