Traditional 401k Plan


The traditional 401(K) plan ranks among the well known retirement savings plans available in the US. The main objective of the traditional 401k plan  is to provide financial stability to the retirees and the aged Americans. The importance of the traditional 401 (K) is more being felt in view of the present recession. More and more Americans are opting for the 401(k) account to be stable and secure even after they retire.

A proper planning is needed to properly save your money in the traditional 401 (k) account. For that you need to have a proper idea of the various aspects of the account. In simple terms, the plan allows you to save funds for the post retirement period. You can as well defer your taxes on the amount that is being saved. The taxes are only applicable if you only withdraw the money from your account.



In case of the traditional 401(K) account, it is up to the employee to decide whether his or her amount of the earnings will be directly paid or deferred to the account. The 401 (K) account is mostly an employer sponsored program in which both the employee and employer contributions are combined. Some companies and organizations also provide the scope for the employees to buy various types of stocks under the 401 (K) packages.

There are also other advantages of the traditional 401(k) . There are a number of assets which enjoy to various tax benefits by being covered under the plan. The after tax contributions are treated on an after tax basis and one can withdraw them without being liable to nay type of taxes. If you are a self employer person, you can also open a 401k account.

The traditional 401(k) plan is also a type of salary reduction plan where a part of you earnings are contributed to the plan. The taxable salaries are reduced by the contributions and these earnings are tax deferred till the time of the withdrawal of the money.


One is eligible to open the 401k account if:-
~ He or she is 21 years of age
~ Has worked for one year and 1,000 hours from the date of hire.

After an employee quits from the job, his or her 401 (K) account remains active throughout his or her life. After reaching the age of 70½, one needs to draw the money out within the first of April every year. An employee can also change the account to an Individual Retirement Account or IRA account. If you join a new job, you can change your existing account into a new traditional 401 (k) account. Usually, the deadline to make a 401k account is the last day of the[custom:path]/retirement-plans/iras/ fiscal year.

There are some limitations and conditions which are put on the withdrawals of the traditional 401 (K) accounts when you are still working or less than 59½ years of age. If you make any withdrawals before 59½ years, an excise tax around 10 % of the amount distributed will be imposed.