The name of the 401K plan is taken from the (section 401K) provisions of the 1978 Internal Revenue Code of the United States.

It is a special type of retirement savings plan in the United States that is popular because of its tax benefits.

As one of the “employee benefits” items, pension plans have always been an indispensable part of American life.

The 401(k) plan originated from the changes to the U.S. tax law and the introduction of related tax exemption provisions in the early 1980s.

Its name comes from Section 401(k) of the Internal Revenue Code, which allows employees to deposit a portion of their pre-tax salary into a savings plan and accumulate it for use after retirement. Based on this, a new pension plan-"

401(k)” began to appear and became popular.

By the end of 2000, its assets had reached US$1.7 trillion, with more than 42 million participants.

According to the new regulations, a 401(k) plan can be established as long as there are more than five employees participating.

Usually the employee will authorize the employer to transfer part or all of his salary to the account. The employee can invest 15% of his salary into the account, but the annual deposit cannot exceed US$15,000.

Except for certain circumstances, 401(k) plan members cannot withdraw this amount before the age of 59.5, otherwise they will not only have to pay taxes according to regulations, but also pay a 10% penalty.

Because it is a pre-tax contribution, and the government does not tax the dividends, interest and capital gains earned by individual retirement accounts, it is only taxed when the funds are withdrawn after retirement (when employees retire, they can choose one of the following three methods to receive

Treatment: (1) Spend all at once, but you must pay taxes, and the tax rate is about 25%; (2) Withdraw on a monthly basis, and pay taxes on a monthly basis, and the tax rate is 10% to 15%; (3) Transfer to the bank, no tax is required)

, the tax benefits brought by tax deferral have greatly stimulated the development of 401(k) plans.

In a 401(k) plan, individual account balances can grow quickly because earnings are tax deferred.

At the same time, because the personal payment is directly deducted from the taxable gross income, that is, paid before tax, there is no need to pay federal (or most state) taxes on this part of the income before withdrawing from the 40l(k) account.

) personal income tax, which makes more funds available in personal accounts.

Of course, the remaining taxes still need to be paid as usual, such as Social Security, unemployment and medical taxes.

Another feature of the 401(k) plan is that contribution funds are automatically deducted from salary, making the plan simpler and easier to implement.

Unlike traditional pension plans, most employers allow employees to have discretion over the investment of their individual accounts, meaning they can invest as conservatively or riskyly as they wish.

Of course, the responsibility must also be borne by yourself.

The "portable" nature of the scheme is also a major draw for the public.

If a person changes employers, he or she has several options for how to deal with his or her personal accounts. They can transfer the account balance to an individual retirement plan, transfer it to a 401(k) plan offered by the new employer, or withdraw the entire account.

balance.

In a 401(k) plan, individuals can receive benefits that are not subject to "minimum investment starting points" and can choose to invest the funds in their personal accounts in professionally managed funds.

In the United States, retail financial service providers usually mandate a minimum investment amount when individuals make investments, usually $1,000, while 401(k) plans allow individuals to invest only a small amount of money when they start investing.

Financing using 401(k) plans is a common investment method used by many Americans.

Individuals can borrow money from their own accounts without paying taxes and penalties, and have the loan and interest repaid automatically through payroll deductions.

In a 401(k) plan, an employer can set up a fund in an individual retirement account for employees based on a certain percentage of their personal contributions, and they can benefit from it quickly.

Assuming that the employer establishes this fund for employees based on 50% of the personal contribution, then for every 100 yuan that the employee contributes, the actual increase in his account is 150 yuan, so the account balance will grow quickly.

However, not all employers will provide this kind of payment plan, and the payment level also varies from employer to employer, usually between 25% and 50%.

Only if the employee meets certain requirements of the company, such as having worked for the company for 5-7 years, and is authorized by the company, can he or she have ownership of this part of the fund.

For this kind of authorization, some companies adopt a "ladder" incremental approach. For example, after 2 years of service, an individual is authorized to own 25% of the equity of this part of the fund, 50% after 3 years, and 50% after 5 years of service.

100%.

In other pension plans, an individual can immediately own all interests in the company's contribution to the individual.

In a 40l(k) plan, employers can have greater control over their employees in this way.

In addition, the flexibility of an individual retirement account (IRA) in a 401(k) plan gives employees more freedom in investment choices.

Individuals can open IRA accounts in financial institutions such as banks and mutual funds, and can also conveniently transfer pensions from bank accounts to mutual fund accounts, or from one mutual fund account to another.

On the same fund account.

A significant number of Americans are switching the money they put into retirement accounts into mutual fund accounts.