A 401(k) – It's Not Just For Retirement

When you're young and have decades of work ahead, it's natural to put off retirement planning. "I'll save later," you say. Problem is, "later" gets here sooner than you expect.

This year some large companies began a new policy – each employee is automatically signed up for the company 401(k) plan upon hiring, with 3% of their pay being set aside in an investment account. Employees can opt-out, but if they do not take the time to say "No," they are in.

The government took a look at the practice and said, "It's OK," or words to that effect. As reported on the website of Cooley Godward Kronish LLP, "The IRS recently ruled that a 401(k) plan may require mandatory 401(k) contributions to be withheld from eligible employees' compensation, if the employer gives appropriate notice to its employees and the employees have an opportunity to 'elect out' of the mandatory contributions."

Now employees will have help saving for retirement in the most painless way possible. Money is deducted before taxes so they never see it. Even better, contributions grow tax free until withdrawal. Many companies have a policy of matching employee contributions, so a 401(k) can be the best way to save for the future.

Suppose that future – the near future – includes buying a home? A 401(k) can help there, too. The IRS says, "… depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan…." You will need to talk to the administrator about how your plan works. If a loan is possible, you pay interest on the loan, but since the interest goes back into your account, you actually pay it to yourself. The money you borrow is not taxable, either, provided you pay back the loan.

With easy investment and help buying that first home, an automatic 401(k) account could be the best decision you don't make all year!

Now this is important: Always talk to your tax/financial advisor before taking a loan from your 401(k), or before making any change in your retirement planning. This article is not intended to give any legal, financial, or tax advice, and does not cover all possible restrictions or regulations related to 401(k) plans or other investments. Always speak with your investment and/or tax advisor before making any decision based on information in this, or any other, source.

Michael Trust
http://www.MichaelTrustRealty.com