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IRS 401k

Many people don’t open IRS 401k retirement savings and investment plans because they are worried about the numerous IRS laws and policies regarding these plans. However, this is an unfounded worry. 401k regulations are simple, common sense, and written to favor the investor. Not investing in a 401k means passing up an immense opportunity to plan for the future and improve your tax situation in the same easy step.

401k plans have become one of the most popular retirement plans in the United States. Often employer sponsored, 401k plans offer an easy way to save money by allowing employers to deduct their employees’ contributions before taxes. This means employees do not have to pay taxes on the portion of their earnings put toward retirement and that they do not have to remember to write a monthly check. Because subtracting the contribution before taxes can mean a substantial tax savings, many people can save substantial amounts in a 401k with little net loss of income. IRS 401k laws are written to encourage people to save for their future and adequately prepare for retirement.

IRS 401k laws do have an effect on the amount people can put in their 401k account from their pretax income. This is a substantial amount of money--$15,500 in 2008—that usually goes up every year to allow for inflation. People fifty years of age or above can also invest an additional amount that is generally around a third of the standard maximum contribution.

One area that IRS 401k laws do not affect is whether your employer can match your contributions. Many employers will match the amount you put in a 401k up to a certain percentage of your income. These contributions do not increase your tax burden or count toward your maximum yearly contribution.

401k laws leave all the choices up to the investor. Your plan administrator will offer a variety of 401k plans that include various levels of risk and reward. These can include mutual funds, stock market investments, and money market accounts. You can usually change your plan around as needed to maximize your earnings while maintaining the level of security that makes you comfortable. If you decide to leave your current job, you can move your money to another tax deferred account without incurring any of the penalties that most people worry about. You can even opt to keep your 401k at the company you once worked at.

Many employers offer a variety of 401k plans and other investment opportunities, so it’s important to educate yourself about the many options available to you. Many people find that a 401k is just one part of their diverse retirement savings and investment plan.

Although people perceive 401k retirement accounts as having a complex set of laws, they are in fact quite simple. The 401k is the government’s way of encouraging people to save for their retirement, and the current laws favor investors immensely. With a 401k retirement plan, you can lower your taxes, increase your take home income, and plan for a happy and secure future in one simple and easy step.

IRS 401k
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