March 12th, 2010 | 
Author: Until 1982, if someone told you that you could get “free” money from your job, lower your taxable income, have an automatic savings plan and relieve you of retirement worries, you might think you were hearing about their financial dreams or fantasies. The creation of 401(k) savings and investment plans, however, made it all come true.
If your employer offers a 401(k) plan, you gain all of these advantages. That is why the 401(k) is one of the most popular and widespread retirement plans offered by American businesses today.
The beginnings
Congress decided in the late 1970s that the nation’s workers probably needed some additional motivation to save more money for retirement. Of course, this was an implicit admission that Social Security is not up to the task, but they sidestepped the criticism and passed the Tax Reform Act anyway.
By lowering people’s state and federal tax bill if they participate in this new tax-deferred savings plan, Congress hit upon a way to encourage participation in the scheme. The section number and paragraph of the Internal Revenue Code (section 401, paragraph “k”) became the name of the plan.
It was actually a financial consultant named Ted Benna who designed the first version of a 401(k) plan, and after it was officially adopted by the IRS the first tentative rules and regulations were issued in 1981. The next year, taxpayers became invested in this new kind of retirement plan for the very first time, but it was almost 10 more years (1991) until the final rules were published.
Planting seeds
If you are under, say, 30 years of age, retirement plans may be one of the farthest things from your mind. The fact is, though, that the earlier you start planning for your “golden years,” the more you will gain from accrued interest and consistent addition of more funds over time
So if your employer does offer a 401(k) plan, you should consider joining the plan as soon as you can. Starting in your mid-20s, you could easily build a nest egg of several million dollars over the course of your working career. By the time you retire, you will be well provided for, even if you do nothing else.
Augment the plan
There are a number of ways that small monthly investments can turn into million-dollar accounts by retirement age. The 401(k) plan is one of the best ways to save for this purpose, which is why employers offer it. With additional research and planning, you can augment the plan in such a way as to increase its growth and earnings.
The 401(k) plan is technically known as a “defined contribution plan” because the payout is a function of the specific, regularly timed deposits to the account. Other defined contribution plans are Individual Retirement Accounts (IRAs), so-called “money purchase plans” and corporate profit-sharing arrangements.
With a comprehensive financial plan, you will develop and maintain an array of investments, savings accounts and employment-based retirement plans to provide income and security after your working career ends. It is especially important for today’s young, upwardly mobile workers to look beyond Social Security for their retirement income, and 401(k) plans are one the best, easiest ways to do that.
|
After founding his first security firm in 1990, Scott McQuarrie built several security-related companies into regional and national powerhouses over the ensuing years. Since 2000 he has focused his sales and marketing efforts on the Internet, which opened up a virtually unlimited, international market for his flagship product line, EZWatch Pro The EZWatch Pro brand has come to stand for world-class expertise in electronic security, video surveillance and the myriad technologies involved in both fields. From small houses to gigantic international airports, there is an EZWatch Pro solution to meet any and every residential, business, commercial and government security challenge. Article Source:http://EzineArticles.com/?expert=Scott_McQuarrie |
 |
Posted in Retirement Planning