What is a 401k - How 401k works?

So you've just started a new job, you are all excited about this fresh opportunity, and you are sitting down to sort through the giant stack of paperwork the girl in Human Resources gave you to read through and complete.

As you go through your new hire package you read about company policies, fill out the direct deposit form, and complete your tax withholding elections so the government can carve a slice out of your paycheck.

You pick up the folder that explains your company's benefits and you read something about a "401k plan". You stop and think to yourself, "What is a 401k plan?"

In simple terms, a 401k plan lets you put money away for your retirement. Think of it as the modern day version of a pension. The old-school pension plans of our fathers and grandfathers are all but extinct, but in there place we have the 401k.

You should treat your 401k as if your future hopes of retirement depend on it. Because they do. Traditional pensions are going the way of the dinosaurs, and you can't expect to get much (if anything) from Social Security. The responsibility for your retirement savings falls squarely on your shoulders, so you'd better know what you are doing.

Let's talk about some of the basic concepts and terms you need to understand about your 401k:
401k plans can come in a variety of different forms that offer many different types of assurances when looking to collect retirement benefits. The best retirement plan is one that best fits the personal needs of the employee. If you are lucky enough to have a company that offers a 401k plan as part of the package, educate yourself in the different types of plans and options available.

To begin, the traditional type of 401k is the most basic form of retirement plan on the market. This is when a corporation withholds an amount of money out of a person's paycheck and places it into a separate company saving account. The company will sometimes match a certain percentage of the deposit that will become available to the employee after they are vested.

Another kind of 401k option is an actual investment account. By investing back into the company or putting the money out on the stock market, people have the opportunity to really increase the amount of money generated for retirement. However, there is also a drawback to this type of plan because money can also be lost due to poor investments.

Mutual funds and other types of bonds are also a great way to invest a 401k. Both of these types of investments are usually fairly sound, although they will not produce as much money as some of the more aggressive approaches. Investors would be wise to have a nice mix of mutual funds and stocks in their portfolio.

Different types of employers will usually have a variety of options available in regard to what type of 401k that they will offer to their staff. If this an option, make sure you take advantage of any match that they are offering. Even if it means cutting out Friday night pizza or giving up your season tickets. This is free money that should s imply not be passed up on.
401k plans all center around a person getting as much monetary security for their retirement years. A person should decide early which plan is best for them and plan accordingly for their future. 401k plans are a great way to invest in the market, increase savings or allow your money to grow gradually in a mutual fund. This is a savings opportunity that is not available to everyone so if you are lucky enough to have a 401k plan, make sure you take advantage of it.

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[DetroitsReaper]

y are so many people who retired still seem to be working I see it all the time now

[paweleve]

So at age 27, I am better off saving my money. Living within my means. Making wise investments. And becoming my own money manager. Got It! :)

[MusicKyirim]

sweet! great video. Question - my emplorer is asking me to fill out the 401K next week.. should i just opt out?

[HONDATA]

Time is your money.money grow like trees!

[RiskyMath]

I hate when YouTube videos feature a dry erase board or a black board instead of graphics.

[whales]

What do you mean the money isn't guaranteed? I thought the money you place in a 401K is 100% protected.

[radkonpsygami]

Major flaw to 401K is: if you die before you're 59.5 years old then you only ran, ran, got tired . . . and never benefited from your savings.

[tmdrake]

I should have saved at AGE 27.... 35 and just starting...

[RolandoAsmat]

I had a 401K plan with TI and I started my 401K. I then switched employers as an intern and so i wasn't eligible for a 401k plan contribution. I got a check with what I had contributed, why?

[XXXOSINXXX]

You should have detailed that this is dealing with strictly Pre-Tax/Before-Tax instead of Roth, or at least listed the difference in there (especially relative to RMDs).

[Fer-zbuz]

Is the 401k can be used for a down payment for house with out paying tax?

[Realsfeel]

Volume Sucks. Get yourself a good quality microphone.

[alrocky]

1:35 "it's tax deductible" --- No, it's NOT tax deductible!

[DetroitsReaper]

what happens when u leave a job and you been putting all this money in the 401k

[saitamataichou]

What happens when you die before age 59.5? Let's say a young man, aged 23 sets up a 401 with his company, and contributes 15% every week for 20 years, then dies in year 21. what will happen to his contributions? I really see no real benefit of having a 401k, it all seems like a huge gamble with too many assumptions.

[justinbailey]

haha take your hard earned money and give it to wallsheet to gamble with it. you put up all the money assume all the risk and when the stock market crashes ur sol. but wallstreet will get bailed out.

[gilbertsevdays]

59.5 years that suck. Personal pension plan sounds better.