401(k) Plan
401(k) Plans
Most employees now participate in a 401(k) plan that is supposed to be used by them to accumulate wealth for their retirement. For the most part the days of the "defined benefit" retirement plan are gone. These were plans into which the company deposited money and the employee would receive a specific amount of money at retirement, usually some percentage of their salary. Many government jobs still operate under this concept, however most private business have moved to the "defined contribution" (401(k)) program.
The bottom line to these 401(k) programs is that it is up to you to accumulate wealth for retirement and to manage it wisely. Most companies give you a wide range of investment options to help you grow that wealth, but few give you the option to invest in bank CD's. This means that you are often subject to the movements of the stock market. You also have no protection of your principle from market volatility.
You should consider asking your employer to offer bank CD's as an investment alternative. You should also ask about withdrawal options once you turn 59½ years of age. Some 401(k) plans allow withdrawals at this age. You can withdraw the funds and deposit them into an IRA account without any penalties. When you get to be 59½ it is important to begin protecting the money you have accumulated. A bank CD gives you that protection.
If you change employers, or lose your job, you can also move any money accumulated in a 401(k) plan into an IRA. This will give you the option to invest in financial institution CD's. It is also possible to move your previous 401(k) funds to your new 401(k) account in some situations. Be aware of the investment options in the new plan before making that type of move. Special rules also apply if you are over 55 when this occurs. Check with a tax professional about your options.
