The 401(K) Plan is basically a retirement savings plan sponsored by the employer and funded by the employee through the money deducted from pretax pay. An employer’s plan will usually offer a number of investments to choose from but the employee will be the one ultimately responsible for making the investment choices. At times, a wider range of options are offered through the plan’s administrator. There will be a need to do some research to assist in decision making on where to invest and incorporate the information with the risk tolerance and time frame of the employee’s financial goals.
The contribution is automatically deducted from the paycheck. The beauty of the whole set-up is that the money will always belong to the employee, even if he/she chooses to leave his/her job. It can either be rollovered to an individual retirement account or to a new employer’s plan.
