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What is a 401k Retirement Plan?

What is a 401k Retirement Plan?

A 401k retirement plan is an American savings account.  The name was taken from the Internal Revenue Code.  Specifically it comes from Title 26 of the US Code.  One who contributes to this plan can take out funds at the age of 59 ½.  Online sources indicate however that as of 2011 approximately 60% of American retirement age individuals have 401k accounts.

They first became popular among American workers in the 1980s.  The 401(k) retirement plan is a valid alternative to the more traditional retirement pension provided by employers.  The 401k retirement plan, however, does place the bulk of the responsibility of saving for retirement to the employees themselves as with 401ks the employer contribution can vary drastically per company.

Saving with a 401k retirement plan helps people in reducing taxable income.  Employees simply choose to deposit part of their wages into a 401(k) account and they do not pay income tax on it until the money is later withdrawn during retirement.  The 401(k) account is generally run by .the employer.

The employees are often offered various options as to how and where their savings are invested.  Typically, they may choose such options as mutual funds, (company) stocks, bonds, money market investments or a combination of any or all of them.  With most 401k retirement plans, the employee may choose to shift and change the specific details of the investment at any time.  401k retirement plans are still popular as this goes to press and provide American workers a workable option in planning for the future.

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About Will Phoenix

W. Scott Phoenix, B.A., B.S. was born in Hawaii, raised in Pennsylvania and resides in California. He has been a published writer since 1978. His work has appeared (under various names) in numerous places in print and online including Examiner.com. He is a single parent of three children and has also worked as an actor, singer and teacher. He has been employed by such publications as the Daily Collegian and the Los Angeles Times.