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401k Savings Account

401k Savings Account. By: Jake Kealohi. Definition. 401k Savings Account- This is a special type of savings account used by employees that is funded through pre-tax payroll deductions. The funds in the account can be invested in a number of different areas. (stocks, bonds, mutual funds, etc.) .

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401k Savings Account

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  1. 401k Savings Account By: Jake Kealohi

  2. Definition • 401k Savings Account- This is a special type of savings account used by employees that is funded through pre-tax payroll deductions. The funds in the account can be invested in a number of different areas. (stocks, bonds, mutual funds, etc.)

  3. Advantages • Tax Advantages • -Allows you to invest pre-tax dollars. Your money in the account won’t be taxed until you begin to make withdrawals. • Employer match programs • Many employers that offer 401k savings accounts will, to a certain point, match your contribution in to the account. It’s like “free money”

  4. Advantages (Cont.) • Investment Customization • With a 401k savings account employees are able to invest in a number of different ways.

  5. Disadvantages • Tied to Employer • With a 401k, you are tied to your employer. If you leave your company, you usually have to roll over your money into your new employers 401k within a certain time or you could face penalties. • Lack of Liquidity • Unable to make withdraws from your 401k until the age 59 ½ so your money is off limits unless you are willing to take a penalty

  6. 401k Information • 2 companies: • United Airlines and Nike Inc. • You are able to decide how much to contribute to your 401k account • Employment Retirement Income Security Act (ERISA) • Est. 1974 to protect your 401k funds in case some thing happens to your employer (bankruptcy)

  7. 401k Information (Cont.) • Average Investment Return is about 6%-9% • Risks involved with a 401k Savings Account • It is more risky than your average savings account. However, the rate of return is often a lot more because with risk comes reward.

  8. The Overall Process of a 401k

  9. Sources • http://beginnersinvest.about.com/od/401k/a/aa122104a.htm • http://wiki.fool.com/Advantages_%26_Disadvantages_of_401(k)s_and_Regular_Savings_Accounts • http://money.usnews.com/money/blogs/planning-to-retire/2009/03/30/the-30-companies-with-the-best-401k-matches • http://money.howstuffworks.com/personal-finance/retirement-planning/401k1.htm

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