A Few Reasons to Have 401k Plan as Your Retirement Annuity Plan

All major organizations offer their employees with 401k plan as a retirement plan. Let us see why 401k is a preferred annuity plan. Life is always unpredictable. A more structured and planned life is the only way to minimize the adverse changes which can happen in the near future. That too unless you stop earning you cannot feel the changes but once the income from all the source stops you would have no option other than withstanding the situation.

To make life fruitful even after retirement you can opt for any one of the retirement annuity plans. Some retirement plans are provided by the organizations you work in. The most commonly offered retirement plan is 401k. Some non-profit organizations like libraries, schools, colleges and so on also offer these plans but, with a different name referred as 403b.

In 401k plan your organization would provide you with an account to start your investment. You have to contribute to your account directly from your payment. You can also contribute manually. You can increase your contribution to your account at any time. The more you contribute the more you will earn after you retire.

What makes 401k different from the Roth IRA:

There is also another retirement plan known as Roth IRA. In this also you will have to contribute to your account from your salary.

• In 401k your contribution will not be taxed.
• You cannot withdraw the amount before the age of 60 or before your retirement.
• If you withdraw before the age of 60 you will have to pay 10% income tax for your withdrawal.

If you quit your current job and re-join in any other company you have three options:

1.            You can transfer your account to the new organization.

2.            If the company doesn’t provide you the option you can get your money distributed.

3.            You can convert it to a Roth IRA plan.

• If you choose the first and third option it is a smart move.
• If you opt for the third one then you should pay the income tax and a penalty for withdrawal of money before the age of retirement which is not worthy.
• If you convert it to a Roth IRA plan you can benefit on the withdrawal of money.
• You can have more than one 401k plan. The more plans you have the more you will have the retirement benefit.
• The income from 401k is tax free.

Features of Roth IRA:

• You can withdraw without paying penalty. But, to be penalty free your account should to 5 years old. That is you it should have completed the seasonal period which is usually five years.
• Your contribution will be taxed.
• Since your contributions will be taxed your returns will be very less.
• Unlike other plans you don’t have the age limit to contribute. You can contribute until you earn.
• You could be penalty free if you strictly follow the rules.
• You can have only on Roth IRA account.
• In case your spouse dies you can combine the account into one.

To make your life more secure and peaceful opt for at least one of the annuity plans.

Some annuity plans are really beneficial. But we should choose it with astuteness. Else you would be cheated by money lovers. So choose the right path with expert guidance.

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Category: 401k