Within the US there are a number of saving plans that help individuals to save money for their retirement. The 401k plan, which is named after the section in the Internal Revenue Code that regulates it, is one of the popular plans, which are provided by employers for their employees.
Within this plan an employee can save an amount of money monthly from his salary, which amount can be then matched by the employer. These contributions are made from pre-taxed income, therefore saving the contributor from lots of tax money. These funds will only be taxed on the way out of the plan, when the contributor reaches retirement age.
This plan will also give the opportunity to your employer to contribute from hi side, up to 50% of your monthly payment, thus matching your savings amount.
These 401k plans give the employer the chance to decide on behalf of the employee, where the saved funds will be going; whether they will be invested in stocks, bonds or other investment choices that the employer and his advisors may deem fit.
As regards regulation, you may find it interesting to know that this plan is regulated by a section within the US Labor department, which is called the Employment Benefits Security Administration. Employees who work for the government may not contribute funds in the 401k plan.
For these people as well as self employed individuals, other similar retirement plans are available. Even for employees of private companies, other options are available that will give the employee more flexibility, in that they can control where the money is invested.
As for withdrawals out of the 401k plan, it is very important to understand that no withdrawals are allowed before retirement age. This plan also does not allow the funds to be paid out or signed over to another person, as the funds are regulated by the United States pension laws.
This plan is definitely a good choice; however one should always get as much information as possible before making his decision.
Reference: http://projectstocks.com/2008/10/401k-retirement-plan-facts-you-might-not-be-aware-of/
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