Investopedia defines a 401(k) as a savings plan offered by employers that allows an employee to make contributions from his salary either on a pre-tax basis or a post-tax basis, sometimes both. The employer also makes a contribution to an employee's 401(k) plan that matches the original contribution or is a non-elective contribution. Some plans also include a profit-sharing feature.Know More
According to Investopedia, the earnings from a 401(k) plan are accrued on a tax-deferred basis. There are limits put in place by the IRS that limit how much an employee can contribute to his plan in addition to rules regarding when and how an employee is allowed to make a withdrawal from his plan. Plans are managed and directed by financial experts whom the employer selects at its own discretion.
If an employee makes an unauthorized withdrawal from his 401(k) plan while he is under a predetermined retirement age, penalties may be incurred, notes Investopedia. Several savings plans allow an individual to dictate his own investments. Such plans can offer a selection of investment products for the individual to choose.
Lee Ann Obringer for HowStuffWorks notes some of the advantages of a 401(k) plan include free contributions from an employer, growing earnings and savings that the employee does not have to remember to make deposits into and a lower taxable income.Learn more about Financial Planning
The main advantage of a SIMPLE IRA is that it gives employers more flexibility with matching contributions. The two plans are largely similar, and both are easy and inexpensive to maintain; they only differ in a few features, notes Investopedia.Full Answer >
Most qualified retirement plans, including pensions, allow employees to borrow against them and then repay the plan with interest, according to Investopedia. One benefit of taking a loan against a retirement account over other types of loans is that interest is repaid directly to the account.Full Answer >
A Roth 403(b) plan is a retirement plan for certain employees of tax-exempt organizations, public schools and certain ministers that operate as a Roth plan, according to Investopedia. Individuals can contribute salary deferral contributions on an after-tax basis, and the investment money grows tax-deferred and distributions are tax-free.Full Answer >
An Education IRA, also known as the Coverdell ESA, is a savings plan for higher education. Unlike custodial accounts, where the money may be used for anything once the child is of age, the funds in an Education IRA may only be used for continuing education.Full Answer >