So You Wanna Know About the 401k Retirement Plan?

What makes the 401k retirement plan different from other pensions is its flexibility and the amount of control you have over it. Some choices include: What percentage or flat monthly rate do you want to contribute? Also, where do you want to invest? Your employer will provide you with a list and you can choose between stocks, mutual funds, bonds, money market investments, company stock or any combination of the aforementioned. You may also select a financial adviser to make the choice for you. As with anything in life, there are risks. If your company goes bankrupt, you may lose a huge portion of your retirement savings, especially if you've invested heavily in company stocks. You may decide to take a more active role in where your money gets invested because some annuities may be losers, while others are winners. Generally, it's recommended to diversify where your money goes so you don't "put all your eggs into one basket."

Ask your employer which type of 401k retirement plan you're categorized into. With a defined benefit plan, the employer pledges to pay a defined amount to eligible employees at retirement and the money you receive will be based upon how long you've worked there and your salary history. Typically, your employer will have control over the pay-out. As a result, you, as an employee, can easily calculate how much money you'll receive in a lump sum or monthly stipend when you retire based on your agreement. With a defined contribution plan, the employer's contributions are definite but what you'll receive when you retire isn't explicitly stated. While the investment risk with the latter plan is slightly higher, your earning potential is also greater.

When you leave a company, generally your 401k retirement plan remains active for the rest of your life. If you feel uncomfortable leaving your savings in the care of your ex-employer, or if your company charges a fee for leaving your account with them, you may rollover 401 k benefits into an Individual Retirement Account. Look into the rollover 401 k if you're changing employers too. You're allowed to draw on your 401k retirement plan after age 59 1/2 and you will then pay taxes on what you take out. Most plans have a minimum distribution requirement you must abide by, meaning that once you reach age 70 1/2, you'll have to start to withdraw some of your money, unless of course, you're still working. The only plan that is exempt from the minimum distribution rules is the Roth IRA. You may decide to take a crash course in investing and take a more active role to ensure maximum returns.

To learn more about the 401k retirement plan, you can purchase retirement planning software like Quickbooks, or investigate retirement planning services at places like Fidelity Financial. The best thing you can do is to invest wisely, diversifying where your money goes or devising a supplemental retirement plan in case your 401k or pension doesn't turn out the way you had hoped.

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