Retirement Tool » 401K

Retirement investing requires discipline

admin — Tue, 30 Nov 2010 04:05:07 +0000

When it comes to retirement investing, it’s not about how much you put in once in awhile, it’s all about saving a set amount constantly and regularly. When you decide on your monthly contribution amount, set it at a level that you comfortable. Don’t try to put in so much in the beginning and stop it when any hardship occurs. You should treat it as if it’s a bill, but a bill that pays to yourself.

Even at $50/month, you can expect a large return after 30 years’ of nonstop investing. If you’re just starting out, save little and gradually add as your life changes. Getting married and having kids can put your retirement on hold, but keep at it, whether through 401K or IRA, discipline is the most important message. Market goes up and goes down, but the return on your contribution is for the long term plan.

How do cash balance plans differ from 401(k) plans?

megdilts — Wed, 13 May 2009 15:37:09 +0000

Cash balance plans are defined benefit plans. In contrast, 401(k) plans are a type of defined contribution plan.

More about Defined Benefit Plans and Defined Contribution Plans.

There are four major differences between typical cash balance plans and 401(k) plans.

* Participation. Participation in typical cash balance plans generally does not depend on the workers contributing part of their compensation to the plan; however, participation in a 401(k) plan does depend, in whole or in part, on an employee choosing to make a contribution to the plan.
* Investment Risks. The investments of cash balance plans are managed by the employer or an investment manager appointed by the employer. The employer bears the risks and rewards of the investments. Increases and decreases in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. By contrast, 401(k) plans often permit participants to direct their own investments within certain categories. Under 401(k) plans, participants bear the risks and rewards of investment choices.
* Life Annuities. Unlike many 401(k) plans, cash balance plans are required to offer employees the ability to receive their benefits in the form of lifetime annuities.
* Federal Guarantee. Since they are defined benefit plans, the benefits promised by cash balance plans are usually insured by a federal agency, the Pension Benefit Guaranty Corporation (PBGC). If a defined benefit plan is terminated with insufficient funds to pay all promised benefits, the PBGC has authority to assume trusteeship of the plan and to begin to pay pension benefits up to the limits set by law. Defined contribution plans, including 401(k) plans, are not insured by the PBGC.

Source: U.S. Department of Labor

Safe Harbor 401(k)

megdilts — Sun, 10 May 2009 03:00:19 +0000

A safe harbor 401(k) is similar to a traditional 401(k) plan, but the employer is required to make contributions for each employee. The employer contributions in Safe Harbor 401(k) plans are immediately 100 percent vested. The Safe Harbor 401(k) eases administrative burdens on employers by eliminating some of the complex tax rules ordinarily applied to traditional 401(k) plans.

Source: U.S. Department of Labor