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by S. Wade Hansen
A 401(k) retirement account is a company-sponsored retirement plan that allows you to boost your retirement savings by investing pre-tax dollars. As an added bonus, the company you work for can also contribute money to your 401(k) retirement plan.  401(k) retirement accounts are also known as defined contribution plans because the amount of money you or your employer put into the plan is defined ahead of time (i.e. there are limits to how much you can put in during a single year). Way back when, employers used to offer retirement plans known as defined benefit plans---or pensions. With defined benefit plans, instead of knowing how much money was being put into the plan, you knew exactly how much money you were going to get out of the plan each year. Naturally, a defined benefit plan offers more security than a defined contribution plan, but defined benefit plans seem to have gone the way of the dodo so we've got to do the best with what we've got. 401(k) Basics 401(k) retirement plans are defined by a few basic features. Once you understand these basic concepts, the rest is just details. Here are the important points you need to remember: - You don't pay taxes on the money you put into your 401(k) - Both you and your employer can contribute to your 401(k) - Your investments grow tax-deferred inside your 401(k) - You pay taxes when you take your money out of your 401(k) at retirement 401(k) Details The following table outlines the specific details that make a 401(k) retirement account unique. | Plan Components | Specifications | Tax Treatment (Contributions) | Pre-Tax Contributions | Tax Treatment (Withdrawals) | Ordinary Income | Contribution Limits (per year) | $15,500 | Catch-Up contributions (50 years old or more) | $5,000 | Employer Contributions | Yes (according to Section 415 limit) | Contribution Deadline | December 31 | Early Withdrawal Penalty | 10% Penalty | Withdrawal Eligibility Age | 59 1/2 | Minimum Required Distribution Age | 70 1/2 | Minimum Required Distribution | Based on Age and Account Size | Rollover Options | New 401(k); IRA | Loans from Your 401(k) Plan | Available | Investment Choices | Depends on Your Company Plan | More on Investment Accounts - IRAs (Individual Retirement Accounts) - Roth IRAs (Individual Retirement Accounts) - Taxable Accounts - Tax Deferral More...
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