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What is a 401K?

In these stressful economic times, as people search for employment or college graduates head off to their first interviews, they will probably hear about 401k plans. Many will ask what is a 401k? The term is tossed about, but many do not have a good understanding of the topic. A 401k is a type of retirement savings account offered by many companies in which employees contribute part of their wages to this fund, allowing it to generate interest, and they are not taxed on those earnings until the funds are withdrawn at retirement age which is generally after age 59. In many cases, the employer matches or at least supplements the worker’s contributions. These plans are also known as IRA’s, or individual retirement plans. In self-directed IRA’s, the individual is able to make investments with his or her earnings, such as in stocks and bonds, to add to earnings and have a more ample retirement.

There are a variety of 401k’s available. Solo 401k plans allow the account holder to make investments in a variety of ways such as real estate, valuable metals, foreign currency or other businesses. People can make high contributions, borrow amounts of up to $50,000 for any reason and have tax deferrals. There are solo 401k rules to take into consideration. There are IRS rules and guidelines, prohibited transactions and exemptions. Account holders should make themselves aware of all of the ins and outs, which may entail finding an expert such as a company that specializes in 401k plans to make sure all is in order and understood.

There are also self-directed IRA LLC programs which involve limited liability companies established by the IRA account and managed by the account holder. It gives the account holder the ability to deposit funds in a bank account under the name of his or her special-purpose LLC and control over that account, enabling withdrawal of funds for investment and deposit of funds.

Regardless of which 401k plan a person has, it is an added benefit for retirement years that is sure to ease the account holder’s mind. If an individual is offered a plan through his or her job, it is a good idea to find out all of the details. Look online and consider the many companies available to assist in investment means.

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Posted in 401(k), Solo 401(k)

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