Getting a 401k account is probably one of the most important investments that every individual in the country needs to consider. This is especially so, as you can expect to count on this investment for eighteen years from the time you retire. Read along to learn more about your 401k.
ERISA or the Employer Retirement Income Security Act lists your rights regarding the 401k-investment option. This law was passed in 1974. According to the ERISA, both your employer and you have certain responsibilities as well as rights regarding the 401k.
Facts About Your 401k
There are many things you need to know with regards to your 401k. To begin with, you need to know how much time will it take for you to have a vested interest in your 401k plan. Also, you need to find out about your company’s definition of the term ” a covered employee”.
In most cases, an employer or a company offers a 401k membership plan to those employees that are above twenty-one years old, and have at least worked for thousand hours within the last twelve months. The plan should also clearly spell out the terms of vesting. In other words it should tell you when you would begin to own all or part of the money that has been put aside for you. You should also have the option to determine how the money set aside for you are invested.
The best part about a 401k plan is that the more money that both you and your employer collectively contribute towards the plan, the more you would accrue at the time of your retirement. In certain cases, only the employee contributes towards the plan. In other situations, an employer may pay an equal amount or match up certain percentage of the contributions made by the employee.
Common Misconceptions Regarding the 401k Plans
Most people believe that they will forfeit their interest or investment in the 401k if they leave their employer. This is not true. You are in fact, entitled to, at least transfer; a part of your investment in your 401k, or in certain cases even the entire amount into the new 401k account of your new employer. It is also possible to have the money from your 401k plan transferred to your individual retirement account. However, do be careful to read your rights, and the laws regarding transferring funds from a 401k plan before transferring any money. This will help you to avoid penalties and taxes. Also, make sure that you do not transfer the funds from your 401k investment plan (during a change of job), into your savings account. This is to avoid the entire amount from becoming taxable.