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 financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.