401k Definition | Annuity Digest (page 17)

401k

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.

Average 401(k) / IRA Balances for Those Approaching Retirement Decrease 28%

The Center for Retirement Research at Boston College indicates that qualified retirement savings have decreased by almost a third--to an average balance of $56,000--due to the financial crisis. "The 2007 Survey of Consumer Finances shows 401(k)/IRA balances of $78,000 for those approaching retirement, a modest improvement over 2004. However, by October 2008, the stock market collapse had reduced 401(k)/IRA balances by about 30 percent - to just $56,000." Source: Center for Retirement Research...

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