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| withdrawn only when you reach the age of fifty-nine | | | | plan are the deciding factors in rebuilding your 401K |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