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Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 1
Introduction
The 401(k) is a defined contribution plan introduced in 1978
Many companies have switched from a pension plan to a 401(k)
It has become popular with both employees and employers
It is currently the designated retirement plan for 3 of every 4 companies
Moving from a pension plan to a 401(k) has shifted the responsibility for retirement from the company directly to the
employee
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 2
Objectives
• Explain how a 401(k) works
You should be able to do the following after completing this lesson!
• Discuss the popularity of the 401(k)
• Review the advantages of having a 401(k)
• Identify why the employer matching funds are important
• Review the disadvantages of having a 401(k)• Describe how you become vested in a 401(k)
• Review the maximum amounts that can be contributed to a 401(k) each year
• Explain when money can be withdrawn from a 401(k)
• Define the key terms introduced in this lesson
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 3
13.4.1 – What is a 401(k)?
• What a Defined Contribution Plan is
• Who provides a 401(k)
• Who will set up a 401(k) for you
• Who is eligible to participate in a 401(k)
• Who can contribute to your 401(k)
• Who decides how your contributions are invested
• What factors help your contributions grow
In this Section, you will learn
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 4
13.4.2 – Advantages of a 401(k)
• What the advantages of a 401(k) are
• How much you can contribute to a 401(k)
• Why your contributions are tax-deferred
• What happens to your money in a 401(k) if you leave the company or are fired
In this Section, you will learn
• Who decides how your money will be invested
• Lost 401(k) Funds Example
You will run the following Interactive Example
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 5
13.4.3 – 401(k) Disadvantages
• How many investments are included in a 401(k)
• Why 401(k) investments are not guaranteed to grow• How long it takes to become vested
• When you can contribute to a 401(k)
• When you can withdraw money from a 401(k)
• Why participation in a 401(k) is optional
In this Section, you will learn
• What the disadvantages of a 401(k) are
• Why many employees cash-out their 401(k) when they leave the company
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 6
13.4.4 – 401(k) Contribution Limits
• How much you and your employer can contribute
• How companies limit the amount you can contribute to a 401(k)
• What the typical percentage a company will allow you to contribute to a 401(k) is
• What the typical employer matching percentage is
In this Section, you will learn
• How much you can contribute to a 401(k)
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 7
13.4.5 – Withdrawing the Money
• What an early withdrawal penalty is
• How your withdrawals will be taxed
• What the IRS Hardship guidelines are
• When you must begin taking Required Minimum Distributions
In this Section, you will learn
• When you can begin withdrawing money from a 401(k)
• What the penalty is for an early withdrawal
Lesson 13.4401(k)
July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 8
Discussion Questions
Why don’t companies help employees who have no knowledge of investing select the best investments for
their 401(k)?
How does a Roth 401(k) work and why is it gaining popularity?
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