FIS – Employee 401k Plan Overview
What is a 401(k)?
A 401(k) is a powerful retirement savings plan offered by employers to help you invest for your future. Contributions to a 401(k) are made pre-tax, which means they reduce your taxable income and grow tax-deferred until retirement. Many employers also offer matching contributions, providing an added boost to your savings. Whether you’re just starting out or nearing retirement, understanding how a 401(k) works can be a game-changer for your financial future.
Why Choose a 401(k)?
- Tax Advantages: Contributions are tax-deductible, and investments grow tax-deferred.
- Employer Match: Many employers match a portion of your contributions, providing free money to boost your savings.
- Flexible Investment Options: Choose from a range of investments, including mutual funds, stocks, and bonds.
- Automatic Savings: Contributions are deducted directly from your paycheck, making saving effortless.
Types of 401(k) Plans
- Traditional 401(k)
- Roth 401(k)
- Solo 401(k)
- S.I.M.P.L.E 401(k)
Frequently Asked Questions (FAQs)
- What is the maximum contribution limit for a 401(k)?
- Can I have both a Traditional and a Roth 401(k)?
- What happens to my 401(k) if I change jobs?
- When can I start withdrawing from my 401(k) without penalties?
- Do I have to start taking money out of my 401(k) at a certain age?
Fun Facts About 401(k)
The Power of Compounding
If you start saving $500 per month in your 401(k) at age 25, you could potentially have over $1 million by retirement at age 65, assuming a 7% average annual return. That’s the magic of compound interest!
The Rule of 72
A fun financial rule of thumb called the Rule of 72 estimates how long it will take your money to double at a certain interest rate. Divide 72 by the annual rate of return (e.g., 72/8 = 9 years at an 8% return).
Catch-Up Contributions
If you’re 50 or older, you can contribute an extra $7,500 annually to your 401(k) beyond the standard contribution limit. This provision helps older workers boost their retirement savings.
401(k) Investment Options
Diverse Choices
Most 401(k) plans offer a variety of investment options, including mutual funds, target-date funds, stocks, bonds, and money market funds. This allows participants to build a diversified portfolio that matches their risk tolerance and retirement goals.
Target-Date Funds
A popular choice in many 401(k) plans, target-date funds automatically adjust the mix of investments based on your expected retirement date. These funds gradually shift from more aggressive to conservative investments as you approach retirement.
Self-Directed Brokerage Accounts
Some 401(k) plans offer a self-directed brokerage option, allowing participants to invest in a broader range of assets beyond the standard fund lineup, including individual stocks and ETFs, providing greater flexibility and control over investment choices.
