What is a 401K plan?

• It is a savings account in which employers can help their employee save for retirement while reducing taxable income, and workers can

choose to deposit part of their earnings into a 401k account and not pay income

tax on it until the money is later withdrawn in retirement. They will pay

less on taxes when they withdraw because their income will be

significantly smaller.

What is a 403b plan?

• It is a retirement plan for an employee of a business that doesn’t operate on the intent of profit, such as schools, churches, and other similar public places. For this reason employers will usually not contribute to the plan.

Who can contribute to a 401k plan?

• The employee contributes to it and many times the employer matches the employee’s contributions

401b?

• Most of the time only the employee contributes.

Who controls where they are invested?

• For both plans whoever is the holder of the plan has complete control over where they want it to be invested.

Are contributions pre-tax or post-tax? Why does it matter?

• Contributions are pre-tax and it matters because paying less tax on assets will most likely happen when a

person retires. They have a reduced income and therefore are in a lower tax bracket.

What is the minimum and maximum that you can contribute to a 401k?

401K:• The maximum contribution for those under the age of 50 is $16,500• Catch-up contribution over 50 years is $5,500, it is intended for

those who will being using it soon• Your employer decides on what other contributions can be made.• Generally 15% is the maximum percentage of your annual salary

that can be contributed.

403B: • It depends on many influences. There is a process to find out your

maximum yearly contribution. For up-to-date information visit: http://www.irs.gov/publications/p571/ch02.html

Is your employer required to contribute to these plans?

• No, employers are not required to contribute.• However, most Large corporations do offer a

plan as it gives them a tax break• According to ehow.com, The employer matching

percentage is typically less than 15 percent and is often in the 6 percent to 8 percent range

• What they contribute is decided by company policy

• (http://www.ehow.com/about_4579824_401_k_-employer-contributions.html)

What is diversification and how does it work? Is it important?

• Diversification is investing portfolios across different asset classes in order to provide a safeguard in case a high-risk

one fails. It all depends on how much you want to risk, the time allotted, and your

investment goal. It is important so that you don’t “put all your eggs in one basket” and

end up out of luck and money if one investment fails.

Are moneys that you invest in a 401k or 403b insured?

• It can be insured only through an insurance company in the form of an annuity contract, either fixed or variable.

• Fixed annuities are contracts where the insurance company gives you a minimum rate of interest.

• Variable annuities are contracts with an insurance company where you make a lump sum of money tax deferred and you receive periodic payments.

• Annuities are insured and the insurance provided is only as strong as the company that insures them. 401k plans do not need to be insured, but this is the only way to do so.

• http://www.irs.gov/publications/p571/ch01.html#en_US_2010_publink1000239614

What fees are associated with a 401k plan?

• Fees depend on what type of 401k or 403b you have.

• Whoever manages your plan will usually require a fee for services provided.

Can you borrow against a 401k plan?

• Yes, you can get a loan by putting up your retirement fund as collateral. The loan is repaid with your interest and by making periodic installments arranged with your bank.

How safe is your money in a 401k account?

• Your money is as safe as what you invest in. Low-risk investments obviously make your money safer and the opposite is true.

What happens to the money in your 401k account if you change jobs?

You can either :• Cash out the money to pay for transitions from your job. This is

the worst option as you will subject to a 20% withholding tax.• Roll assets over to new employer plan.

• Roll the account into an IRA.

How should you invest the money?• Diversify. The high-risk investments can

bring in a lot of money, but it is important to keep the low risk ones just in case.

What are the benefits of offering 401k plans for employers?

According to the United States Department of Labor, • A well-designed 401(k) plan can help attract and keep talented employees. • It allows participants to decide how much to contribute to their accounts. • Employers are entitled to a tax deduction for contributions to employees’ accounts. • The money contributed may grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles. • Contributions and earnings generally are not taxed by the Federal Government or by most State governments until they are distributed. • A 401(k) plan may allow participants to take their benefits with them when they leave the company, easing administrative responsibilities.

When can you start to withdraw the money from a 401k? What are the conditions?

You can start to withdraw from your account when/if you:• reach retirement age; it is defined in the plan you

choose• Become disabled• Reach the age of 59 and a half.• You must start to withdraw by 70 and a half.

Early withdrawals by the plan owner will result in a 10% additional tax.

• What is a 401k account?

It is a savings account in which employers can help their employee save for retirement while reducing taxable income.

What is a 403b account?

It is a retirement plan for an employee of a business that doesn’t operate on the intent of profit, such as schools, churches, and other similar public places.

Are contributions pre-tax or post-tax?• Contributions are pre-tax and it matters because paying less tax

on assets will most likely happen when a person retires. They have a reduced income and therefore are in a lower tax bracket.

How should you invest the money?

• Diversify. The high-risk investments can bring in a lot of money, but it is important to keep the low

risk ones just in case.

When can you start to withdraw the money from a 401k? What are the conditions?

You can start to withdraw from your account when/if you:• Reach retirement age; it is defined in the plan you choose• Become disabled• Reach the age of 59 and a half.