Working With a 401k

Most people use a 401k as part of their retirement planning.  A 401k is a special account that you deposit money into, but can not use it until you retire.  Many employers offer 401k plans where they also contribute money, so you can build a nice account.  These accounts can be confusing, though.  There are rules and guidelines about contributing and withdrawing money, so it is important that you really understand all that you can about a 401K before opening one.

Retirement planning can be confusing and 401k plans do not make it any easier.  A 401k plan is an employer sponsored retirement account.  The employee deposit's money form every paycheck into their account.  It comes out before taxes so you save a bit on taxes with each contribution.  Employers often contributes to employee accounts, as well.  The money in the account is then distributed to different stocks and bonds.  You can choose the approach you will take.  Some people prefer to put all their 401k into stocks because the returns can be amazing, but it is risky, so others choose a more conservative approach.  They may only put partial amounts into risky stocks and choose more secure options for the rest of their money.

You can withdraw you 401k plan money once you reach the age of 59 ½.  If you withdraw before that time you will have to pay tax penalties.  Even when you withdraw at the [roper age you will still pay income taxes on the money.  Remember, though, you have not been taxed on this money before, so it is not a double tax.  If you switch jobs you can usually transfer your 401k to the new employer or continue to invest in it on your own. 

To keep your 401k in good shape you should periodically review it.  Yu should see how your investments are doing and change anything that is not bringing you a profit.  You may even want to review it with a professional investor.  They might be able to offer advice as how to increase your return and grow you 401k.  Most of the time, though, your 401k plan is something you don't have to think about.  Your money is automatically deposited and there is nothing you really must do until it is time to retire and collect your money.