| If your company offers a 401K retirement | | | | Do not invest heavily in the stock of your |
| plan, you have the option to select the funds | | | | company. Instead, diversify your investments. |
| you desire to invest. Your choice must be | | | | Contribute the maximum tax deferred amount to |
| from a list of funds provided in the 401K | | | | your 401K each year. You can also make |
| plan. Each employee can contribute up to a | | | | additional, non tax-deferred contributions of |
| certain percentage of their pay, which is | | | | less than $35,000 or 25 percent of your |
| deducted directly from the salary before | | | | annual income. Your age and company's policy |
| taxes into a 401K. Some employers match a | | | | plan are the deciding factors in rebuilding |
| certain percentage of your contribution, | | | | your 401K balances. A younger person will |
| which is then invested. These funds grow | | | | have a longer time to rebuild, than a person |
| without being taxed. They can be withdrawn | | | | who is over 50 years of age. |
| only when you reach the age of fifty-nine and | | | | |
| a half. You must pay income tax at the time | | | | The suggested allocation for balancing 401K |
| of withdrawal. The funds in the account can | | | | at the three life stages is: |
| be invested in different stocks, bonds, | | | | |
| mutual funds or other assets, and are not | | | | 1.Aggressive: For those with 35 or more years |
| taxed on any capital gains, dividends or | | | | until retirement. |
| interest until their final withdrawal. | | | | |
| | | | 50%-large cap stocks |
| What is a 401K? | | | | |
| | | | 15%-mid cap stocks |
| A 401K is an employer-sponsored retirement | | | | |
| plan and is grouped into two categories. | | | | 15%-bonds |
| | | | |
| 1. Defined Benefit Plan: The employer | | | | 10%-small cap stocks |
| promises to pay a defined amount to retirees | | | | |
| who meet certain eligibility requirements. It | | | | 10%-international stocks |
| usually links the benefit to the amount of | | | | |
| service and final average salary. Employees | | | | 2.Moderate: For those with 20 years until |
| can either receive it as monthly retirement | | | | retirement. |
| income or as a lump sum on retirement. | | | | |
| | | | 35%-large cap stocks |
| 2. Defined Contribution Plan: This is a | | | | |
| contribution that an employer makes, and not | | | | 35%-bonds |
| the benefit that the employee will receive at | | | | |
| retirement. Since it is not a monthly income, | | | | 10%-mid cap stocks |
| an employee receives the amount in a current, | | | | |
| deferred lump sum, or annuity on leaving the | | | | 10%-small cap stocks |
| company. Laws prohibit companies from | | | | |
| utilizing the 401K money, but they can invest | | | | 10%-international stocks |
| 401K money in stock funds. If the company | | | | |
| goes bankrupt then you lose that money. | | | | 3.Conservative: For those within 10 years of |
| | | | retirement. |
| Benefits of 401K Plans | | | | |
| | | | 40%-bonds |
| There are five key benefits. | | | | |
| | | | 30%-large cap stocks |
| 1.Tax advantage | | | | |
| | | | 10%-mid cap stocks |
| 2.Employer match programs | | | | |
| | | | 10%-international stocks |
| 3.Investment customization and flexibility | | | | |
| | | | 10%-cash |
| 4.Portability | | | | |
| | | | You can derive the maximum benefits from your |
| 5.Loan and hardship withdrawals | | | | 401K plan, if you make wise investment |
| | | | choices and build your portfolio carefully. |
| How to Balance 401K Funds | | | | 401K plans are the best way to plan for your |
| | | | retirement. |