Your Companys 401k Plan


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The money tutor - Jo Ann Brown enlightens the reader about how the 401(k) plan is introduced on the job. She gives advice on how to prepare yourself to participate in the 401(k) plan when you become eligible. The reader gains information on how to start setting goals and planning. The reader will no longer miss the FREE MONEY given away by the employer.

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Your Companys 401k Plan

  1. 1. Your Company’s 401(k) Plan By Money Tutor Jo Ann Brown
  2. 2. Congratulations! You’re Hired
  3. 3. I worked in Corporate America for 10 years. When first hired, I endured a grueling two-week on the job training course. The instructor gave explicit instructions on how to perform the job. I was drilled for hours, day in and day out. One morning, I was introduced to someone from the payroll department who gave a 15-minute presentation about the company’s 401(k) plan. I listened intensely and gathered several details only to learn that I could not join. As I repeated the phrase through my head, “You cannot join now,” I wondered why someone would even mention something I couldn’t participate in. I walked out of training, job ready, and never thought about the 15-minute 401(k) presentation again
  4. 4. Sounds Familiar? Hopefully, you will soon start reading your Financial Security Benefits Package and learn the following: 1. Your company offers a Retirement Savings Plan – 401(k) that all employees are eligible to join after completing 1 year of full-time employment. 2. Internal Revenue Code authorized the 401(k) plan and through the years more and more employers have adopted this deferred compensation retirement plan and no longer offer a pension to their employees. 3. Employees decide how much money they want to contribute each pay period. It’s your option to invest the maximum. You can invest any amount your budget allows. 4. Employees decide how they want to invest the money. The employer has preselected stocks choices for you to invest in. 5. The employer will match a portion of your contribution. This means that every dollar you invest, the employer will give a dollar. This can best be described as FREE MONEY.
  5. 5. For example, if the employer matches 6% your contributions and your hourly wage is $15. Note the following: 2080 hrs x $15 40 hr. work week 52 weeks 6% Annual employee = Salary $1,872 $31,200 6% employer $15 per hr match = $1,872 Annual salary is $31,200 (working 40hrs per week x 52 weeks = 2,080 hrs worked) and (2,080 hrs x $15 hourly pay = $31,200). If you invest $1,872 ($31,200 x .06) your employer will also invest 1,872. That’s right – the employers are giving away money – Free Money.
  6. 6. The amount you decide to defer is money that comes out of your paycheck before income taxes. You immediately start paying less to Uncle Sam because your gross annual salary will automatically deduct all contributions you have made to your 401(k) plan. For example – your annual salary above was $31,200: Annual Salary $31,200 Minus $1,872 401(k) contribution Pay Taxes on $29,328 401(k) annual contribution = $1,872 Annual salary $31,200 – contribution $1,872 = $29,328 You will pay taxes on $29,328 because of your 401(k) contribution.
  7. 7. Your initial $1,872 investment will be kept out of the hands of the Federal and State governments until you retire. Equally important, the dividends and capital gains earned on your investments are also deferred. Participating employees choose to take home a smaller paycheck because there are several major advantages to saving for retirement through the 401(k), including: Immediate tax savings because contributions come out of your check before taxes are withheld. You don’t pay taxes each year on capital gains, dividends, or other distributions made on these investments. You can borrow from yourself instead of the bank – also known as a general loan. It may reduce credit card usage. You can also borrow from yourself instead of the bank – in cases of a hardship or emergency. Free money.
  8. 8. Don’t forget the earlier you get started, the more money you will have saved at retirement. The next step is to start getting organized. Ideally, three months before you are eligible to participate in the 401(k) plan. Remember, the employer, the plan administrator, and you are a team and work together to find the investments that may produce an 8% rate of return. Each person has a role to play, but you are the one that makes the ultimate decision of how much to invest and which stock to invest in. Develop an approach to learn the Plan, Product, and the Program administrator’s website. Want To Learn More?