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Millions of people use 401ks as a way to save up for their retirement. These 7 facts can help you to understand better how 401ks works and how you can use them to their full potential.

1. Maximum Contribution

There is a thing called a 401k maximum contribution, which is the most you can possibly invest into your 401k ever year. If you go over the limit then the extra money which you deposited would be taken out by April 15 of the following year.

2. Employers May Reward You

Some employers will actually reward you for investing into your 401k plan. Some employers will help their employees save up money by investing more money into your account everytime you invest in it.

3. Tax Deferred

Of course the most important part about investing in a 401k is that they are tax deferred. This means that any money you deposit into the account or make by investing in the account is tax free, at least until you take money out. This gives you the advantage od getting a good growth off of your investment.

4. Penalty For Early Withdrawals

Taking an early 401k withdrawal comes with a 10% penalty. This means that if you take money out early you will have to pay a small penalty. So it is usually better to wait.

5. Hardship Withdraws

There are certain instances where you will be able to take money out of your account early without paying the penalty. For instance if you are buying your first home you may take out some money early with and only have to pay taxes on that money.

6. Loans

One other advantages of 401k plans is that they allow you to get out a 401k loan from your retirement account, but there are a few downsides to this, you would have to pay it back and you might not be able to deposit any more money into your account until you pay the loan back.

7. Self Directed Option

Many plans also have a self directed option which means that they allow you to manage your investments yourself. This could either be a good thing if you know what you are doing or a bad thing if you don’t.

Tags: facts about 401k plan, Things To Know About Your 401k Plans

This entry was posted on Wednesday, February 3rd, 2010 at 11:04 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.