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Make the 401k Plan Work For You

With pension plans in the US looking grim in the near future, many businesses are changing the way they help their employees plan for retirement. Retiring is one of the greatest joys in life, but due to monetary complication in the US government it seems that many are looking at 401k plans to be their saviors. During the past few years, many U.S. based companies have changed the retirement outlook of this country by straying away from traditional retirement pension plans and focusing towards more profitable 401k plans. This trend has been growing fairly consistently and the statistics prove this point. Today, nearly one-fourth of the Fortune 1,000 companies have already changed or are considering changing their pension plans to individual 401k plans.

Computer giant IBM is the latest company to follow this new trend and joins the list along with other big names such as Sears, Hewlett-Packard, Motorola and Verizon Wireless. To help consumers understand the basics of 401k plans, we at CreditGUARD of America, Inc. have put together the following Do?s and Don?ts of 401k plans. If your employer offers a 401k plan and matches a certain percentage of your contribution, you should take advantage of this opportunity without delay. An average employer matches 50 cents for a dollar and up to 6 percent of an employee?s salary. What most employees do not understand is that the employer contribution match is basically ?free money?.

401k?s can be a great retirement tool for as long as you do not break the piggy bank until you reach the age of 59-1/2. If you decide to withdraw money from your 401k before that date, you must pay income taxes on your withdrawals in addition to the 10 percent early withdrawal penalty. Also, when you tap into your 401k funds early, you basically sacrifice your future compound earnings, which will substantially shrink your nest egg. Another good point to remember is that when you leave your current job for whatever reason, you should follow proper precautions when rolling over your 401k to another employer or to an Individual Retirement Account (IRA). Most people when leaving their jobs request the employer to cash out their 401k?s and write out a check for them. In such a situation, the employer is required by law to withhold 20 percent of the funds for tax purposes. However, if you request your previous employer to arrange a direct rollover without going through your bank account, the tax withholding can be avoided.