Employer Sponsored Retirement Plans - 401 (K) Plan

Your employer may offer the best retirement tools available to you.

If you are gripped by fears that you will outlast your money or end up as a bagger on the street, take some time to write down these worst case scenario fears and plan and strategize about what you will do to make sure that these things don't happen. One thing you can do is start now to put more money away for your future. Don't think you have to take care of everyone else before you start attending to yourself.

Your employer may offer the best retirement tools available to you. More and more employers are offering employees the ability to contribute pre-tax money to retirement accounts that give you the opportunity to grow your money tax-deferred until you begin to withdraw the funds in retirement.

401 (K) Retirement Plan

More that 30 million workers are saving for their retirement using a 401(k) plan. This is a defined contribution plan set up by an employer. It allows the employee to make contributions to the plan through payroll deductions, and the employer may or may not add to it.

401(k) plans are self-directed, meaning the employee makes the investment decisions, choosing among choices the employer has provided. They are qualified retirement plans, and the contributions are permitted to grow deferred until the proceeds are withdrawn.

How much you can contribute to these plans is limited by the law and your employer's plan.  For 2001, the contribution rate is usually the lesser of 15 percent of your income or $10,500 (the $10,500 will be indexed to cost-of living adjustments every year but must be made in increments of $500). Your employer may allow you to contribute more or less than the 15 percent.

That's your limit, but the IRS allows you and your employer a combined contribution limit of up to the lesser of $30,000 or 25 percent of your salary. Many employers offer a match to employees. A typical match is 4 percent and dollar for dollar. So it you contribute 4 percent of your income, your employer will also contribute 4 percent. If you decide to increase your contribution, your employer will still only give you the 4 percent. If you are eligible for a 401(k) plan at work with a company match and are not utilizing it, you are leaving free money on the table. That's right, you are walking away and leaving money on the table, money your employer won't make available to you in any other way.