Years ago, almost all employees in all companies received a pension through a company-paid pension plan. People stayed in a job for their entire careers, and companies felt it was their duty to provide this kind of loyalty after retirement as well. The main benefit of having a pension was that the employee did not need to contribute. Was a present. Then life changed and so did corporate America. The companies were still willing to help him after retirement, but looked for other vehicles to do so. And so came the 401k plan.
The 401k became the preferred method for most (non-union) companies to help employees invest for the future. The employer really has no other responsibility than to select a financial institution, usually a brokerage firm, to administer the plan. Although many companies have a contribution plan in which they provide an additional percentage of their own contribution, there is no law to do so. In today’s financial climate, most companies do not contribute or contribute very little.
There is an annual threshold of $ 15,000 per person, regardless of salary. You can choose the funds in which to invest your money, but of course you are limited to the funds available from the brokerage house that administers the 401k plan for employees.
Although the 401k concept is attractive, not all plans are worth the investment. Many employees choose not to participate in their company’s plan because after a little research they may find that the funds (mutual funds) have not performed well.
When you contribute to a 401k, you are using pre-tax dollars. If you need to make an early withdrawal (before age 59), you will be penalized and charged at the usual rate.
If you must change jobs, don’t forget your 401k. Talk to a financial advisor about “rolling” you to a new 401k plan at work, or logging into a Roth IRA.