A 401(k) is a retirement plan dedicated to the working professionals of the country. It is beneficial for the employees in the long run as it provides a security after retirement. It allows employees to invest a specific amount of their salaries for their future. The returns are reliable and guaranteed. A specific amount is automatically deducted from the salary of the employees before it is even taxed. Companies may also match the amount if they wish to. The amount is kept unused by the employees as they do not have to pay any taxes for it.

The company is required to lay certain rules and eligibility criteria for the employee to be able to opt for the programme.

The deductions are done after a voluntary decision taken by the employee and the organization. The employees are not allowed to withdraw the money before 59 years of age unless they retire early. Doing so incurs a penalty of 10%. The organization can also receive certain tax exemptions in consequence of the contributions made by the employees. The employees are free to decide whenever they want to stop investing in the 401(k). To make things simpler, there are online forms available for signing up for a 401(k) plan. Earlier, employees were offered pension plans by the organizations. However, as the cost of pensions started increasing, 401(k) replaced the pension plans.

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Not exactly perfect, the plan has its limitations. The plan refrains the employee from investing more than a specific amount of money. They are not allowed to withdraw the amount before retirement. However, the plan allows the employees the liberty of deciding how much amount they want to put in. The plan also allows you to either increase or decrease the amount you put in every month.

For more convenience, employers send regular updates to their employees about their 401(k) accounts. While some companies allow their employees to enroll in the plan right away, some wait for a year to sign them off as eligible. Another highlight of the 401(k) plan is that it allows you to assign a beneficiary, which means you can choose who you want the money to go to if something were to happen to you.

Moreover, the plan is quite flexible when it comes to market fluctuation. In case your company crashes and shuts down, you can withdraw the entire amount from your account and start a traditional IRA with it. This will help you avoid paying the 10% penalty that will incur due to the withdrawal.

What started in 1978 has received immense popularity when it comes to retirement plans. It may seem a little difficult to understand at first but once you know what it is, it becomes a reliable source of security for every employee. Working professionals across the country prefer investing their money in the 401(k) plans because the returns are concrete and guaranteed. If nothing else, employees are assured that their money is in safe hands.

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