401(k)'s

Since pensions are few and far between these days, 401(k)’s have become a retirement saving vehicle for many companies. During the 1980’s the costs of running pensions climbed and employers started replacing them with 401(k)’s.

The name 401(k) is for the section of the tax code that governs them. A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account. Many 401(k)’s have a match which is usually a percentage maybe 3%, so if you put in an amount the employer will match up to that percent. I always say whatever you do take the match that’s “free” money!

Over years of working, someone could have several 401(k)’s from various jobs and consolidating and rolling those accounts over to a safe money account can make a lot of sense since fees can eat up gains and even move you backward. These days we have to be in charge of our own retirements.