Types of 401k retirement plans

While there have been many decisions taken by administrations to tax the American people in every way possible, there is one avenue that has remained untouched and would continue to be so in the future too. So, what is a 401k retirement plan? In simple terms, it’s a fund that is made up of our monthly contributions that will be entitled to tax after you have retired and wish to withdraw the money. However, the advantage is that being a senior citizen, you will be subjected to a lower tax slab than what you’re currently obliged to. The funds you contribute toward these plans are tax-free. There are typically two types of 401k retirement plans available in the market: traditional 401k and safe harbor 401k retirement plans.

  • Traditional 401k retirement plans
    It is a simple 401k retirement plan that allows an employee to contribute a fixed amount every month in his/her plan. The organization can match the contribution of the employee in his/her retirement plan or contribute any amount as desired. The fixed amount will be eligible for tax breaks, that is, the amount you contribute toward your 401k retirement plan would not attract any tax whatsoever. Instead, that amount would be subjected to taxes once you withdraw your amount post retirement. Being a senior citizen, the tax rate would be considerably lower than the current rates.
  • Safe harbor 401k retirement plans
    Similar to the Traditional 401k retirement plans, the Safe harbor 401k retirement plans must provide for employer contributions that are fully vested when made. They are not subjected to the complex annual calculations made on Traditional 401k retirement plans. These contributions can be made by a company on behalf of employees.

Leave a Reply

Your email address will not be published. Required fields are marked *