Important 401(k) terms to know
Whether you’re just starting your career or looking to retire soon, you should know about your 401(k) and other retirement plan options. Learning how a 401(k) rollover works, if your employer will match your 401(k) and what your retirement saving plan options are takes time, but these terms are essential for beginning to understand the process.
How much will your employer match your 401(k)?
This is the amount your employer will add to your contribution. For instance, a 50% match means your employer contributes $0.50 for every $1.00 you put in.
What’s the limit on how much my employer will match your 401(k)?
The maximum percentage of your salary that your employer will match. For instance, if you contribute 7% of your salary to your 401(k) and your employer has a matching limitation of 3%, then they’ll contribute, at their matching rate, just 3% of your salary. They don’t match the remaining 4% you contribute.
Do I have to pay taxes on my 401(k) contribution?
You fund your 401(k) with pre-tax dollars, meaning they are taken out before taxes are deducted from your paycheck. So, if you contribute $4,000 this year to your 401(k) and you make $50,000 per year, your adjusted gross income on your W-2 will be $46,000.
How much am I legally allowed to contribute to my 401(k)?
Since your contributions reduce your adjusted gross income, by law, you can only contribute up to a certain amount each year. This amount changes every year or so, depending on the inflation rate.
When do I gain ownership of my 401(k) funds?
For companies that match a percentage of your 401(k) contributions, this schedule refers to the amount of time it takes for you to gain 100% ownership of your company’s matching funds.
Are 401(k) hardship withdrawals penalized?
This is money you can take out of your 401(k) savings, given that you meet certain qualifying conditions. If you’re younger than 59½, you’ll have to pay 10% penalty for the loan, plus income tax, for the money you withdraw.
Need help making important 401(k) decisions?
If you have any questions about your employer-based 401(k) or rolling over a 401(k) to another employer or an IRA, we want to help. As a member of Arsenal Credit Union you have access to David Weis, our knowledgeable financial advisor available through our broker-dealer CUSO Financial Services, LP (CFS)*. Click here to learn more about David and the services he offers.
More 401(k) resources
- Leaving your job? Here are some of your retirement savings plan options
- Rolling over funds from an employer retirement savings plan? Here’s what you need to know.
- Factors to consider when rolling over employer retirement savings plans
- Changing jobs? Know your 401(k) options
- Six potential 401(k) rollover pitfalls
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Before deciding whether to retain assets in an employer sponsored plan or roll over to an IRA, an investor should consider various factors, including, but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock.