A 401k is an employer-sponsored, long-term savings plan that is intended to help you sock-away money for your retirement. A 401k offers significant tax breaks and has a few drawbacks. The money you put away now to be used later after 59 ½ years of age or at retirement is not taxed until it is distributed. Some companies match part of the dollars that you stash away. Your retirement savings are increased through these employer matching contributions. You can borrow against a portion of a 401K, as long as you pay it back plus the low interest. Otherwise, if you tap into your savings before 59 ½, you pay penalties for early withdrawal and the early distribution is also treated as regular income for tax purposes.
Both plans are established by employers for the benefit of their employees. A 401k plan is established by corporations, while a 403b plan is established by non-profit organizations, public education organizations and self employed ministers. Both qualified retirement plans have similar tax treatment.
A 401k plan is established by an employer to assist their employees to save for retirement. Funds which are contributed into the plan by the employer are typically treated on a tax-deductible basis, although some plans offer the option to contribute on an after-tax basis. The funds grow on a tax-deferred basis and are taxed only upon withdrawal.
The vested portion of a 401k account is the portion which is yours and which cannot be forfeited in the event that you sever employment with the organization. The money which you contribute into the plan is immediately vested, but any portion which your employer contributes on your behalf may be subject to a vesting schedule.
The 401k plan was established to encourage individuals to save for their future retirement needs. A 401k plan is established by an employer to assist their employees to save for retirement. Individuals who are eligible to save through a 401k plan can save money on a pre-tax basis, lowering their annual taxable earnings, and in some cases with qualified plans, can contribute additional funds on an after-tax basis. 401k plans also benefit the employer, as contributions made on behalf of the employees into these accounts may be tax-deductible for the business.
