Who has not heard of a 401(k) Plan? Widely acclaimed as an effective way to increase retirement funds, 401(k) plans are a preferred method of earning the most money possible for retirement.

The IRS has established a pre-taxed contribution limit of $15,500 in 2007. Essentially you pay less to make more in a pre-tax environment. In addition, your contributions and earnings increase without the presence of taxes to lessen your account's progress. However, your 401(k) is still assessed a 10% early withdrawal penalty fee if your age is less than 59 1/2.

Other beneficial aspects of a 401(k) are listed in the following subsections.

A 401(k) Plan is Portable – Regardless of whether you want to take one with you after leaving your former employer or want to transfer the funds to your own retirement account, you can do so without restrictions.

A 401(k) is Ideal for Employer Matching – More money now equates to a lot more money later in life. Employers are sometimes generous and agree to pay a specific amount into your account as a way of matching your contributions.

A 401(k) is quite flexible – Options abound when deciding how to invest your money. These options include stock, bond, and money market funds, a guaranteed investment account, and company stock. High and low risks are involved with each opportunity.

How to Catch Up – At the minimum age of 50, you are permitted by federal law to allocate an extra $5,000 to your account. This is known as a catch-up contribution.

It is wise to deeply consider taking advantage of a 401(k) plan with your employer. If you are still unsure, consult a trusted financial professional to answer your more complex questions.

This information is presented to educate the reader and does not constitute professional tax and legal advice.

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