A 401(k) plan is named after the Internal Revenue Code section from which such a plan was born. In its pure essence; it is a company sponsored retirement plan that allows employees to place a portion of their earnings into a tax-deferred savings or investment account, to help in planning for retirement.

Employees are usually given the option to select from different mutual fund choices. Ideally, they base their selection on retirement goals and objectives and risk tolerances. Such options might include diversified equity funds, fixed income funds, and money market funds - among others - and might even include company stock.

The benefits to having a 401(k) plan are listed below:

  • Tax benefits: The contribution made toward your retirement plan reduces your taxable income and your investment grows tax-deferred.
  • Matching contributions: Many employers have a policy of matching contributions up to a certain limit.
  • Accessibility: In the case of an emergency or a hardship, these plans allow you to borrow against your account.
  • Investment management: Although the employer is responsible in determining the investment options available, the employee selects the percentage of money allocated to each available fund.
  • Flexibility: If you change jobs, you can roll your proceeds into an individual retirement account or, if allowed by your new company, you can also transfer your money into a new plan. You may also choose to leave it with your previous employer if your vested account is big enough.

401(k) asset allocations selection can be tricky, given fast changing market conditions and difficulty in being able to monitor retirement savings on a day-to-day basis. Patrick Financial Group, L.L.C., can help you make an informed decision as to your investment portfolio, as well as educate you on the selection of appropriate risk tolerances and suitability profiles, tailored to your unique position.

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