401k and IRA Save The Later Days

Working all your life and then what… You got to have a strategy early in the game. Or, get lost in translation after your retirement. This is what most young professionals are missing. They are so busy making a name for themselves, they are forgetting that one important thing: all things must come to an end, even the brightest careers lose its flicker. Our body and energy will not perpetually serve and work. There will come a time when we all have to retire. As this day arrives, those who have prepared gets the chance to finally taste the fruit of their decades of labor. When speaking of retirement investment, the 401(k) is a common term.

What is a 401(k)?

This is a type of savings account in the United States mandated by the government. These annual contributions are not to exceed $17500 and are deferred of taxes. These are social contributions that are deducted from salaries of employees. The chunk of contributions depends on the employer’s program. It was initially enacted into law in the late 70’s. It can be made on a pre-tax or post-tax basis subject to the preference of the employee. Employers are strict with regard to withdrawals of pre-tax contributions especially while the employee is still in active service and is under 59 ½. Any exceptions would be subjected to excise tax.

What is IRA?

While 401(k) is an employer’s duty for its employee’s social contributions, several financial institutions provide the IRA or the Individual Retirement Arrangements. The taxpayer or the beneficiaries of taxpayers can set up an IRA account. Contracts may be purchased in annuity or an endowment contract. Former employees can have their 401(k) closed upon termination of employment. They can roll-over the funds to IRA.

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