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401(k)
Defined... Page 2
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Employer Match
In some cases, employers make their own contributions to your 401(k) plan. This
contribution takes the form of an employer match on your contribution. Usually the
employer matches a certain percentage of your contribution. For example, an employer may
elect to put in 50 cents for every dollar you contribute. That's an immediate return on
your contribution, regardless of how you invest your 401(k) money.
Not every employer matches the employee contribution, but in some cases the company will
match the employee contribution dollar-for-dollar.
What Do You Have To Do?
A 401(k) plan is an investment vehicle. Within the particular plan offered by your
employer there are a number of investment options (each plan has a different set of
options). These options may include mutual funds, guaranteed investment contracts (GICs)
and, in some cases, stock in your employer. You decide which of these investments you want
to buy, and how much of your total contribution you want to put in each.
This is a key difference between paying into Social Security and contributing to a 401(k).
With Social Security, Uncle Sam decides how to invest your money. With a 401(k) plan, you
decide for yourself. That may seem scary, but it gives you the opportunity to invest in a
range of high-quality, professionally managed and potentially very lucrative investments.
The Social Security Administration, on the other hand is legally obligated to stick to a
very narrow range of investments.
How Do You Know Your Money Is Safe In Someone Else's Hands?
It is very easy to keep track of the savings in your 401(k) account. At regular intervals,
you will receive an update telling you how your investments performed. Most plans also
provide toll-free numbers and web sites you can access to keep track of your 401(k)
holdings. You can move the money around within your plan easily.
A 401(k) is the easiest savings plan available to most American workers. It makes
investing convenient and simple, and encourages you to save for the long term.
Next: 401(k) Advantages |
