Adding money to an investment account each work year can help a worker guarantee they do not run out of savings later in life. 401(k) plans make work pay off a second time, after a living income is earned.

Americans who plan to make steady investments in their 401(k) account can grow their life savings until they have enough to know it will last. The accounts make good accounts for retirement plans.

Contributions Workers Can Count On

Americans have an opportunity to give up a small amount of their earned income today and invest that money to grow their savings for the future. The money can come out of the paycheck before any taxes are taken out. They have guaranteed savings in the amount they choose to contribute.

Productivity Can Pay Two Times

Employers make contributions to their worker's 401(k) account in some plans. Automatic enrollment plans are a type of plan employers have to make a contribution. An employer makes a choice of the plan and the amount they would like to give their worker for their productivity and service at the company. The amount is a percentage of the earned money the worker chooses to put into their 401(k) account.

An Investment That Earns Money

The savings amount is not simple addition. 401(k) savings contributions are invested in money making investments. For some 401(k) plans, workers can choose their investment plan from options and manage their investment accounts by choosing where to keep their money and the account future contributions will get invested in.

A worker will get a benefits statement from the person who handles their plan. Those who manage their own investments will get quarterly statements. When the plan investments are managed by a plan professional, the statements are sent to the worker annually. The statements keep track of:

• the worker's salary level
• the worker's contribution amount
• the employer's contribution amount
• investment earnings
• and, the beneficiary designation

Money In Hand

The investment money stays in the account until a worker chooses to take their investment out. Americans can plan on getting the amount they contributed to their savings, plus any contributions made by their employer and the investment earnings. Fees for the account can be subtracted from the investment.

Three typical options are available. The life savings can be paid out all at once in a lump sum payment. Or, in some plans, the worker can get their money in monthly payments called an annuity. If they plan on continuing to earn money, such as after retirement, they can transfer the 401(k) account investment to an individual retirement account (IRA).

Workers can, if they choose, withdraw the money before the plan reaches full maturity (i.e. at retirement). Note that they might have to pay taxes and a penalty. After changing jobs, rolling the investment over into another employer's plan is typically a safe option. Rolling the money over into an IRA is another option that Americans choose. The most likely withdrawal to get penalized is simply taking out all the money without reinvesting the amount.

The Guaranteed Count

401(k) plans can keep the current savings count growing. After the savings plan is done, a worker can live their life secure in their life's savings.

Source:

Employee Benefits Security Administration, What You Should Know About Your Retirement Plan (October, 2010).