401(k)

In US 401(k) refers to the retirement savings left with a former employer. 401(k) is a kind of tax-qualified deferred compensation plan in which an employee can elect to have the employer contribute a portion of his or her salary to the plan on a pretax basis. These are generally called deferred wages as they are deferred from current income taxes, on the saved money and earnings on it until withdrawal.

There is a limitation on how much percentage of salary can be kept for deferral contributions. There are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan.

Advantages Of 401(k):

1) Increased Take Home Pay --> This tax deferred saving plan, reduces your current taxable income and simultaneously increases your take home pay. These savings are tax deferred until withdrawal.

2) Automatic Deduction --> In this plan your savings are automatically deducted from your payroll. So you don't get a second thought on whether to save or to spend.

3) A Company Match Can Help Your Investments Grow --> Certain companies offer contribution of certain amount to your account for every dollar that you contribute. In this circumstance you are bound with the work for certain number of years. This way your savings will grow manifold.

4) Emergency loans --> If any emergency you can take loan from this deferred savings account and pay it back later with the interest ( a fixed rate determined at the time of the loan).

5) Emergency Withdrawal --> Another benefit is that, you can withdraw it before retirement, when in heavy financial need, but you can't put it back after total withdrawal.

6) Updated Account Services --> Through statements, telephone and online account services 401(k) plan holders are kept updated on how their investments are working. Total account information are provided on time to time.

7) Portable --> The main beauty of this plan is that it can be transferred from one job to another, without withdrawing your total amount everytime you change your job