401 (k) Time is on Your Side

What’s a 401(k) It’s a retirement account You only get through an employer Lowers your taxes Employers can match employee contributions

It’s a retirement account

You only get through an employer

Lowers your taxes

Employers can match employee contributions

Sample Pay Stub No 401(k) Deduction $ 886.39 Net Pay $ 0.69 PA SUI $ 35.42 PA Withholding $ 16.73 Medicare $ 71.54 Social Security $ 143.08 Federal Withholding $1,153.85 Bi-weekly Gross Pay $30,000 Annual Salary

Sample Pay Stub 5% 401(k) Deduction $ 839.13 Net Pay $ 57.69 401(k) Deduction $ 0.69 PA SUI $ 33.65 PA Withholding $ 16.73 Medicare $ 71.54 Social Security $ 134.42 Federal Withholding $1,153.85 Bi-weekly Gross Pay $30,000 Annual Salary

Defers Capital Gains Taxes 5% of $30,000 Annual Salary Invested at 9%apr

5% of $30,000 Annual Salary Invested at 9%apr

Employer Matching Contributions Free money 50 ¢ on the dollar up to 6% of salary $2700 $2250

Free money

50 ¢ on the dollar up to 6% of salary

$2700

Makes Saving Easy Automatic Percentage

Automatic

Percentage

Compounding Using money to make money More time, more money

Using money to make money

More time, more money

401(k) Savings Calculator can be found at www. bloomberg.com

This Is My First Job If you leave your employer  Take the money and run  Leave it in the plan  Roll it over into an IRA  Roll it into another 401(k )

If you leave your employer

 Take the money and run

 Leave it in the plan

 Roll it over into an IRA

 Roll it into another 401(k )

Plan Restrictions No such thing as a standard plan Employer Retirement Income Security Act (ERISA) Your plan may be more restrictive

No such thing as a standard plan

Employer Retirement Income Security Act (ERISA)

Your plan may be more restrictive

2008 Contribution Limits

Types of Vesting 100%  5 0% < 5 Percentage of money you keep Years with employer Cliff Vesting

100% 7 80% 6  7 60% 5  6 40% 4  5 20% 3  4 0% < 3 Percentage you keep Years with employer 7 Year Graduated Vesting

Plan Expenses Recordkeeping and administrative Investment management Benefit transactions Education and advice

Recordkeeping and administrative

Investment management

Benefit transactions

Education and advice

Where to Invest Mutual Funds  Money Markets  Stable Value  Bond  Stock Funds

Mutual Funds

 Money Markets

 Stable Value

 Bond

 Stock Funds

Risk More time—more risk tolerance Greater risk—greater possible return

More time—more risk tolerance

Greater risk—greater possible return

Diversification Investment “B” 20yrs Investment “A” 20yrs $15322 $10955 $9646 12% $1000 $0 -- $1000 $1806 3% $1000 $3870 7% $1000 $0 -- $1000 $10955 4% $5000

Company Stock Blessing and a Burden  Enron  Dot com’s

Blessing and a Burden

 Enron

 Dot com’s

Getting Money Out Depends on plan If allowed, difficult to do

Depends on plan

If allowed, difficult to do

Withdrawal Must be a “hardship”  Facts and circumstances test  Deemed hardship ♦ Buying a primary residence ♦ Education expenses ♦ Medical expenses ♦ Preventing eviction

Must be a “hardship”

 Facts and circumstances test

 Deemed hardship

♦ Buying a primary residence

♦ Education expenses

♦ Medical expenses

♦ Preventing eviction

Penalties, Taxes, Lost Money 10% early withdrawal penalty Income taxes—25% - 40% $15,385 withdrawn = $334,843 lost retirement money

10% early withdrawal penalty

Income taxes—25% - 40%

$15,385 withdrawn =

$334,843 lost retirement money

Loans Most plans allow loans  Some allow for anything  Commonly use deemed hardship list No more than 50% up to $50,000

Most plans allow loans

 Some allow for anything

 Commonly use deemed hardship list

No more than 50% up to $50,000

Loans You pay interest Must be repaid within 5 years Leaving creates issues

You pay interest

Must be repaid within 5 years

Leaving creates issues

Resources www.psca.org Profit Sharing/ 401(k) Council of America www.morningstar.com Investment advice

www.psca.org

Profit Sharing/ 401(k) Council of America

www.morningstar.com

Investment advice

Further Resources www.dol.gov/ebsa / Employee Benefits Security Administration 401(k)s for Dummies Co-authored by the 401(k) creator

www.dol.gov/ebsa /

Employee Benefits Security Administration

401(k)s for Dummies

Co-authored by the 401(k) creator

Questions