Home > Glossary > 401(k)

Meaning / Definition of

401(k)

Categories: Finance,

You participate in a 401(k) retirement savings plan by deferring part of your salary into an account set up in your name. Any earnings in the account are federal income tax deferred. If you change jobs, 401(k) plans are portable, which means that you can move your accumulated assets to a new employer's plan, if the plan allows transfers, or to a rollover ira.With a traditional 401(k), you defer pretax income, which reduces the income tax you owe in the year you made the contribution. You pay tax on all withdrawals at your regular rate. With the newer Roth 401(k), which is offered in some but not all plans, you contribute after-tax income. Earnings accumulate tax deferred, but your withdrawals are completely tax free if your account has been open at least five years and you're at least 59 1/2.In either type of 401(k), you can defer up to the federal cap, plus an annual catch-up contribution if you're 50 or older. However, you may be able to contribute less than the cap if you're a highly compensated employee or if your employer limits contributions to a percentage of your salary. Your employer may match some or all of your contributions, based on the terms of the plan you participate in, but matching isn't required.With a 401(k), you are responsible for making your own investment decisions by choosing from among investment alternatives offered by the plan. Those alternatives typically include separate accounts, mutual funds, annuities, fixed-income investments, and sometimes company stock.You may owe an additional 10% federal tax penalty if you withdraw from a 401(k) before you reach 59 1/2. You must begin to take minimum required distributions by April 1 of the year following the year you turn 70 1/2 unless you're still working. But if you prefer, you can roll over your traditional 401(k) assets into a traditional ira and your Roth 401(k) assets into a roth ira.

Featured term of the day

Definition / Meaning of

Health Insurance

Categories: Insurance,

Health insurance covers some or all of the cost of treating an insured person's illnesses or injuries. In some cases, it pays for preventive care, such as annual physicals and diagnostic tests. You may have health insurance as an employee benefit from your job or, if you qualify, through the federal government's Medicare or Medicaid programs. You may also buy individual health insurance directly from an insurance company or be eligible through a plan offered by a group to which you belong. As you do with other insurance contracts, you pay premiums to purchase coverage and the insurer pays some or all of your healthcare costs, based on the terms of your contract. Some health insurance requires that you meet an annual deductible before the insurer begins to pay. There may also be co-insurance, which is your share, on a percentage basis, of each bill, or a copayment, which is a fixed dollar amount, for each visit.Health insurance varies significantly from plan to plan and contract to contract. Generally, most plans cover hospitalization, doctors' visits, and other skilled care. Some plans also cover some combination of prescription drugs, rehabilitation, dental care, and innovative therapies or complementary forms of treatment for serious illnesses.

Most popular terms

1. Portable Benefits
2. Budapest Stock Exchange (BSE)
3. Quarter
4. Fall
5. Spousal Coverage Extension
6. Terms Of Reference
7. Most Favored Venue Wording
8. US Savings Bond
9. Construction Defect
10. Loss Payable Clause

Search a term

Keyword:

Browse by alphabet

ABCDEFG
HIJKLMN
OPQRSTU
VWXYZ#

Browse by category

Accounting
Banking
Bankruptcy Assistance
Bonds and Treasuries
Brokerages
Business and Management
Compliance and Governance
Credit and Debt
E-commerce
Economics
Estate Planning
Forex
Fraud
Fundamental Analysis
Futures
Global
Insurance
International Trade
Investing and Trading
Ipos
Legal
Loan and Mortgage
Mergers and Acquisitions
Mutual Funds
Operation and Production
Options
Patent
Personnel Management
Real Estate
Retirement and Pension
Statistics and Risk Management
Stocks
Strategies
Tax
Technical Analysis
Venture Capital