| 401K refers to a section in the Internal Revenue Code | | | | then both the investments and contributions continue to |
| of the Federal government aimed at encouraging | | | | grow tax-deferred. |
| workers to establish retirement savings plans. This | | | | It is a very simple concept. A 401K plan is set up by |
| section was established in 1981. | | | | the employer. The employee has to decide what |
| A 401K plan is actually a tax deferred investment and | | | | percentage should be deducted from the income |
| savings plan. Under this plan, an employee of a | | | | before his or her paycheck is taxed. That means it is |
| corporation or a private company is allowed to save | | | | the employee who pays into the plan. But once an |
| and invest money for retirement purpose. A 401K Plan | | | | employee decides then the rest of the things are |
| thus acts as a personal pension fund for employees | | | | taken care of by the employer and the plan provider. |
| of corporations and private companies. In a 401K plan | | | | The contribution to this plan is automatically deducted |
| an employee authorizes the employer for pre-tax | | | | from the pay of the employee in each pay period. This |
| payroll deductions from a salary. These deductions are | | | | money is then invested before the employee's income |
| invested in various investment options including mutual | | | | has been taxed. The money continues to grow in your |
| funds. These options could differ for company to | | | | personal 401K account. The money can be withdrawn |
| company. Under this plan the investment earnings and | | | | in case of certain emergencies. In some cases one |
| the employees' contributions continue to grow. They | | | | can borrow against it also. But generally the money is |
| are taxed as ordinary income at the time of | | | | supposed to stay in an employee's account till he or |
| withdrawal, which is assumed to be at retirement. Till | | | | she attains the age of 591/2 years. |