What Types of 401(k) Plans are Available?

No matter how long you have been a part of the workforce, comfortable retirement is a dream that every employee has for their future. Whether it is traveling the world or making sure your children will have a safety net for their futures, a retirement plan can help you realize your personal financial goals. It not only allows you to live comfortably while you work but also set aside savings for when you eventually retire so that you can ensure that you will have a peaceful retirement and will be able to provide for your family and yourself when the time comes.

401(k) plans from Ubiquity are the best way to ensure that you will meet all your financial goals and keep a steady retirement fund for the future. These plans are business-sponsored retirement accounts that allow employees to deposit a set percentage of their monthly and annual income into a traditional or Roth account. Having a retirement plan is equally beneficial for both employees and business owners as it lends stability to their work and personal lives and imparts distinct tax advantages depending on the type of plan selected.

Types of 401(k) Plans

Diving headfirst into the world of personal finances can be highly challenging, especially if you have no prior knowledge of retirement funds and how they work. However, it is essential to remember that despite the often-complicated jargon surrounding these plans, they are quite easy to understand. Here are some of the most common types of 401(k) plans available in the United States.

Traditional 401(k)

A traditional 401(k) allows employees to contribute their share via deduction of the gross income. This deductible is applied before income taxes, which means that the total taxable income of the employee is decreased by the amount of 401(k) contributions made during a fiscal year. Taxes are not levied on the money held in a 401(k) or subsequent investments until the amount is withdrawn in the future.

Roth 401(k)

A Roth 401(k) allows employees to contribute their share after the income tax has been deducted. Since the tax has already been deducted from their overall income, there is no additional tax levied on the amount during the fiscal year or after retirement when the employee withdraws their 401(k) amount.

SIMPLE 401(k)

For all intents and purposes, a SIMPLE 401(k) is a hybrid between a traditional 401(k) and a Roth IRA. These plans have lower limits for contribution compared to a traditional plan, and there is a smaller degree of flexibility associated with customizing the plan for your business or employees. However, like both the plans mentioned above, a SIMPLE 401(k) allows both employees and business owners to take loans against their savings and pay them back to their accounts.

Conclusion

A 401(k) plan allows both employers and employees to save funds for their post-retirement lives. Having a financial safety net can be crucial in surviving the increasingly volatile global economy. It also allows you to diversify your investments such that the risk of financial investment is evenly distributed, and you remain safe from any unexpected financial losses.