Introduction to 401(k) plans

Read the basics here. Then discuss the details with a retirement plan expert.

A 401(k) plan is ideal if you want a flexible retirement plan that offers a range of ways to contribute. The money that’s invested can come from several different sources, including:

Payroll deductions — money that’s deducted from the employee’s paycheck.

Matching employer contributions — if the employee invests a dollar, so does the business. By matching, employers reward their people and encourage them to contribute.

Profit sharing — when business owners reward their employees by contributing a percentage of the company’s profits.

Rollover — if your employees previously worked for companies that had 401(k) plans, they can transfer what they’ve already saved into their new account with you.

Note: There are legal limits to how much money each employee can contribute each year and overall. Once money has been contributed, employees can typically choose from a number of different investments. Some 401(k) plans offer employees the option of borrowing some of the money they’ve saved.

For much more about preparing financially for retirement, see the topic Planning Your Future in the Hands on Banking for Adults course.

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