Understanding Your Employer Sponsored 401(k)

Are you fortunate enough to work for a company that offers a qualified retirement plan? If your employer provides an opportunity for employees to participate in a 401(k) retirement account, it's certainly in your best interest to choose to participate. You'll be able to enjoy the benefits of tax deferred investing for your financial future, and you may even be able to supplement your own retirement savings with an employer match if your company offers such a benefit.

Make sure you take the time to educate yourself about the details of your company's retirement program. While there are many similarities among 401(k) accounts, there are also plenty of ways that retirement plans can differ from one company to the next. While, generally speaking, employer sponsored 401(k) programs are beneficial to plan participants, it's still a good idea to make sure you understand the fine print so that you are familiar with the relevant facts about your plan.

Vesting Time: One of the facts that you'll want to check out is the vesting cycle associated with your company's 401(k) benefit. Company matches are great, as long as you plan on being with the company long enough to become vested in the plan. While ERISA sets maximum vesting times on qualified retirement plans, some companies allow employees to become fully vested in a shorter period of time than is mandated by law. Keep in mind that if you do leave your job before becoming fully vested, you will not be able to take the portion of your account contributed by your employer with you.

401(k) Loans: It's important to read the fine print if you're thinking about taking out a 401(k) loan. While there are situations in which borrowing from your 401(k) can make sense, it's important that you make sure you understand the exactly terms and conditions under which you have to repay the loan to avoid penalties. Often, if you change jobs before paying back the loan, you'll end up having to pay it back in a lump some to keep from having to pay penalties instead of being able to make smaller monthly payments to yourself that make it less difficult to pay back the loan. That's why you should be sure to consider your future plans and stability of your position within the company before electing to take out a 401(k) loan.

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