401(K) is a qualified Retirement plan. Qualified pension plans must meet the requirements of the IRS for installation and operation. They are divided into two categories: defined contribution and defined benefit.
In the Pension defined benefit plan, the employer agrees to provide the employee with a specific payment regardless of the investment performance of the employer. Example pension plan defined benefit pension. Pension defined benefit plan puts the burden of generating assets due to the employee after the retirement is firmly on the employer.
Pension plan defined contribution lies with the employee is sufficient to contribute to the Pension plan to provide sufficient funds for retirement. The most common dened contribution plans the 401(K), 403(B) and Ira.
Regardless of the type defined contribution accounts, there are a number of limitations to the account. These restrictions include the Type of investment that can be made, with mutual funds and money market accounts is the most common. Other limitations relate to when funds can be withdrawn without penalty. Generally speaking, any withdrawal before age 59.5 must meet the strict requirements of the tax and to punish in the form of a 10% excise tax on the tax. Some employers allow short-term loans with regular payments and interest that are paid back to the account, but this is not a requirement 401(K) for the employer’s permission for this type of loan. 401(K) plans require that the account holder begin to distribute funds from his account if he or she reaches the age of 70.5 years.
(For associated reading, see: a 401(K) and qualified plans.)