401(K) PLANS

Essential Questions Why Do We Need to Save for Retirement? What are the best options for Retirement Savings? How should I go about choosing the right investment options?

Retirement Vehicles Many retirement options are available at work The type of retirement option you choose is dependent upon where you work, your goals, & your risk tolerance

Potential Retirement Choices 1. Employer sponsored Individual Retirement Account (IRA) 2. Personal IRA B (Select occupations) K

What is a 401K? A 401(k) plan is a retirement savings plan that is funded by employee contributions and (often) matched contributions from the employer

WHAT’S SO GREAT ABOUT A 401K? PRE-TAX CONTRIBUTIONS Huge tax savings (see example) Investments grow tax free until withdrawal

WHAT’S SO GREAT ABOUT A 401K? CONTROL OVER THE INVESTMENTS You decide where to direct future contributions and/or current savings You can choose how much risk you are willing to take You can change your selections & amount of withdrawal at any time in most cases High risk Low risk

WHAT’S SO GREAT ABOUT A 401K? COMPANY MATCHES Your Company will often put more money in to your 401k - “matching” your contribution FREE MONEY

WHAT’S SO GREAT ABOUT A 401K? CONTRIBUTIONS CAN BE MOVED FROM ONE COMPANY'S PLAN TO THE NEXT COMPANY'S PLAN (OR TO AN IRA) if a participant changes jobs PROTECTED BY PENSION (ERISA) LAWS PERSONAL IRA CONTRIBUTIONS ARE SUBJECT TO MUCH LOWER LIMITS

THERE HAS TO BE DISADVANTAGES DIFFICULT (OR AT LEAST EXPENSIVE) TO ACCESS your 401(k) savings before age 59 ½ DON'T HAVE THE LUXURY OF BEING INSURED by the Pension Benefit Guaranty Corporation USUALLY NOT VESTED (i.e., matched funds do not become the property of the employee) until a number of years have passed – Employer will determine

?HUH? With respect to participant's choice of investments, expert (sic) opinions from financial advisors typically say that the average 401(k) participant is not aggressive enough with their investment options. Historically, stocks have outperformed all other forms of investment and will probably continue to do so. Since the investment period of 401(k) savings is relatively long - 20 to 40 years - this will minimize the daily fluctuations of the market and allow a "buy and hold" strategy to pay off. As you near retirement, you might want to switch your investments to more conservative funds to preserve their value.

IN ENGLISH When you are YOUNG choose RISKIER investment options – ups & downs are smoother As you approach retirement, ie. GET OLD choose SAFER investment options

401K Article Assignment Go to MSN.COM Click on MONEY (Top of Page) Click on Retirement (Left side under “PLANNING”) Click on 401K – (Left side under quick search) – you will find several articles OR – Find articles from an alternative (reputable) source

401K Article Assignment Read any 2 articles related to 401K issues, ideas, suggestions, advice, etc. Copy and paste the two articles to a word document Summarize each article in 1 paragraph Discuss what you learned from reading each article in the second paragraph DUE ON _______________________