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Retirement Plan 401(k)

Your employer may offer a 401(k) retirement plan as part of your compensation package. Whether you are deciding to contribute to this type of retirement account, or determining how much you should contribute, it’s important to learn the basics of a 401(k).

Keep reading to learn how a 401(k) plan can benefit your retirement planning.

Planning for Retirement: What Is a 401(k)?

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A 401(k) is a tax-friendly retirement plan that allows employees to use payroll deduction to contribute a portion of his or her income to the account. These deferred wages are generally not subject to federal income tax at the time of deferral and are not reflected as taxable income.

Employers often match a portion of their employee’s contribution, making it one of the most popular types of retirement plans available through an employer.

401(k) Basics

Below is an overview of how a 401(k) works:

Contributions

Contributions to most 401(k) plans are tax-deductible. Contributions can be made through payroll deductions, which makes saving more convenient.

Most employers will offer matching contributions, often up to 3% of your salary.

Contribution Limits 

Employees can contribute an annual amount subject to IRS limits to their 401(k). For people aged 50 or older, catch-up contributions are allowed.

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Distribution Rules

You can begin withdrawing from your 401(k) as early as age 59 ½, but you must begin collecting distributions by the time you reach 70 ½.

Tax Treatment

For normal 401(k)s, your withdrawals are included in taxable income. 

In contrast, Roth IRAs (Individual Retirement Accounts) are funded by post-tax dollars and withdrawals from this type of account are tax-free.

Retirement Planning: Next Steps

When it comes time to save for retirement, Synchrony Bank can help. We have several savings accounts, including IRAs, that can help you meet your retirement goals.

Synchrony Bank does not provide tax advice so be sure to contact your tax advisor or financial consultant before opening or contributing to an IRA, or taking any action with regard to your 401(k).

Learn more about retirement plans and other savings tools by calling 1-844-345-5789 or click here to open an account with Synchrony Bank today.

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Sources:

IRS: https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-401k-plan-overview


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