Financial Word of the Week: 401(k) Plan
A 401(k) plan is a retirement savings account usually offered through your employer. Some employers will offer a match or non-elective contribution to your retirement account, which is a smart way to help you reach your retirement goals faster.
It’s important to understand the plan your company offers to ensure you are getting the full employer match by contributing as much as you need to be. Remember, your employer’s contribution match is free money!
The contribution you elect to make is taken out of your salary before taxes. The IRS regulates how much you can contribute each year. For 2015, the limit is $18,000. If you are 50 or older (and therefore closer to retiring), you can contribute an additional $6,000 as a catch-up contribution. 401(k) contributions are usually invested in mutual funds, which will be covered later in our series. Generally, a 401(k) account cannot be accessed until you are 65 without early withdrawal tax penalties.
Use our calculator to obtain an estimate of where you stand with your retirement savings.
If your employer doesn’t offer a 401(k) plan, stay tuned for next week’s post when we explore other retirement savings account options.
UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.