401K / Employee Benefits - Virginia

Individual 401k salary deferral contributions can be made as Roth 401k (after tax) or Traditional 401k (pre-tax) deposits. The basic difference between a Roth 401k and a Traditional 401k is that the Roth 401k is funded with after-tax contributions, while the Traditional 401k is funded with pre-tax contributions. In other words, with a Roth 401k you pay taxes today in return for tax-free withdrawals in retirement. Traditional 401k contributions are tax deductible and are made pre-tax, so you save taxes today, but withdrawals are taxed in retirement.

So what is a 401k retirement plan? A 401k plan is actually a retirement investment plan that is subsidized by employee or worker payments, and often by corresponding contributions from your manager or employer. The most important aspect of these plans, available from The Insurance Smith, is that the payments are taken from your pre-tax wage, and the tax-free funds accumulate until they are withdrawn.

Employers set 401k withdrawal limits based on IRS guidelines. In general, workers under the age of 59 1/2 may withdraw money from their 401k plans only if they or a family member has large medical bills to pay, to make a down payment on a house, to prevent foreclosure on their homes, or to pay for college for a child or a spouse.

An Individual 401k loan is permitted at any time using the accumulated balance of the 401k as collateral for the loan. Individual loans are permitted up to half of the total balance of the 401k, up to a maximum of $50,000. A loan from an Individual 401k is tax-free and penalty free. There are no penalties or taxes due, provided loan payments are paid on time.

The Individual 401k is the newest and most exciting retirement plan to benefit the self-employed, thanks to the recent tax law created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This tax law became effective Jan. 1, 2002, and provides significant advantages to small businesses whose only employee is the owner, or the owner and their spouse. These self-employed business owners can establish an Individual 401k plan and take advantage of this powerful retirement savings tool.

Most people are not aware of the true facts about the 401K penalty, simply because they are not properly informed. First, a 401K plan is the most common method people use to save for their retirement. When the account is created, it allows people to save dollars that have yet to be taxed, and to invest in stocks and bonds. Sometimes an employer will match your contributions, which will help you earn free money. However, due to inevitable financial hardships brought about by several factors, account holders sometimes use the money from this account. And many people are actually wondering if this is a good practice or not. The professionals at The Insurance Smith can help you understand all aspects of any retirement plan.