5 Benefits of 401k Retirement Plans Investing

DEFINITION.TODAY - There are 5 main benefits of 401K retirement plan investing. These include tax advantages, employer based match programs, portability, investment versatility, and hardship and loan withdrawal capabilities.

1. Tax Advantages

The tax advantages of traditional 401K's center around the fact that your contributions are fully tax deductible, meaning that you only pay income taxes on the money as it is taken out.

2. Employer Based Match Programs

Employer based match programs are like receiving free money for retirement. A number of employers offer this benefit of matching a certain percentage of a contribution of an employee as a benefit, for obtaining and keeping quality employees. These amounts can range up to one hundred and 50% of amounts contributed and even higher.

3. Portability

Portability of 401's allows for you to take your account with you after leaving an employer. This is fitting since the account belongs to you and not to the employer. You also have the option to leave an account with an employer's plan, if you prefer.

5 Benefits of 401k Retirement Plans Investing

4. Investment Versatility

The investment versatility of 401K's means that many choices of investments are available for the funds placed in these accounts. Lower risk investors can choose to hold short term bonds. Higher risk investors might opt for equities and higher risk investments.

5. Hardship and Loan Withdrawal Capabilities

401K's also feature the ability to take loans against them. These are repaid according to terms set up with the plan administrators. When a family has medical expenses or other disasters to deal with, they may also take a hardship withdrawal from the plan. Pre-retirement age withdrawals include a ten percent plus tax rate penalty.

Limitation and Regulation

The maximum amounts that may be contributed every year in a 401K account vary with your salary, plan type, and government regulations. Typically, it is the lesser of either the most that your employer will low you to put in as a percentage of your salary, such as four percent, or $16,500 plus the inflation index, as per 2010 government rules. This maximum dollar amount is increased with changes to the cost of living index each year.