401k Savings Plan

The most popular retirement savings plan is a 401k retirement plan. 401k plans allow workers to save for retirement and have the savings invested while deferring current income and earnings until withdrawal. The current limit for contributions into a 401k plan is $16,500 per year. For workers who are 50 years old or older, they can defer an additional $5,000 per year as a “catch up” for retirement savings. The money contributed comes directly from an employees’ income. The money is contributed pre-tax so that the individuals’ income taxes are reduced directly by the contributions. In addition, the earnings on a 401k plan grow tax deferred until they are withdrawn during retirement. Most 401k retirement plans offer a wide range of investment option.. Many 401k plans also offer guaranteed or fixed account for participants who do not want to assume the risks associated with the stock and bond markets.

Retirement savings plans have penalties for withdrawals before age 59. During retirement all money withdrawn from the 401k plan is taxed as ordinary income. The exception to this rule is on company stock which utilizes net unrealized appreciation so that the growth of the stock can be treated as a capital gain for tax purposes in some cases. During retirement, an individual may leave their money inside the 401k plan or they may choose to rollover their 401k plan to an IRA. This rollover allows an individual to hold their retirement assets in their own name and the same tax rules apply. Whether the money is left inside the 401k plan or rolled over to an IRA, mandatory distributions must occur by April 1st following the year an individual turns 70.

At Clay Northam Wealth Management we help individuals invest into their 401k retirement plans. We also set up 401k plans for corporations and sole proprietors. Often times, a 401k is the easiest and best way for an individual to save for retirement. Many companies will match an employees’ contribution with corporate dollars. We encourage our clients to take full advantage of these matching contributions. Please feel free to contact our offices regarding questions about your current 401k plan, setting up a 401k plan, or your options for rolling over your previous 401k plan. We have offices in El Segundo and Seal Beach to address your financial planning concerns.