401k
The term 401k refers to a qualified pension plan available in the United States of America which enables the working population to save money for retirement and invest their savings. Income taxes are not paid on the saved money until it is withdrawn from the account. A percentage of all wages are paid directly into the 401k. The majority of 401k pension plans are employer-sponsored plans. The employer has the option to either match a part of the employee's 401k contribution by depositing an additional amount in the 401k account or offer a profit-sharing feature to the plan. There are a couple of 401k plan variations that are available to employees.
Participant directed 401k plans
Participant-directed 401k pension plans allow the employee to select from a list of investment opportunities, which generally consists of mutual funds based on stocks, bonds, money market investments or a combination of the aforementioned. Some companies' 401k pension plans offer an option to purchase a stock from the company.
Trustee-directed 401k plans
The trustee-directed 401k pension plans are less popular. In this instance, an employer assigns trustees who decide how the 401k pension plan's assets are to be invested.
A 401k pension plan is different than a regular pension, as the worker has full control over the 401k plan regardless of how long they are employed by a particular company. As long as workers make no investments in a company's stock, their 401k plans are personalized and belong to them. A regular pension plan is owned by the employer and can be jeopardized if an employee is fired or if the company goes bankrupt.
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