There are two main types of employer-sponsored retirement plans: defined benefit and defined contribution. A defined benefit plan, such as a traditional pension plan, sets the amount that the employer will pay to workers upon their retirement. In defined contribution plans, the plan sets the amount of the contributions that an employer makes, not the benefit it will pay at retirement. In 1978, section 401(k)of the Internal Revenue Code authorized a new kind of defined contribution plan that allows the employee to make pre-tax contributions to the plan.
In a 401(k) plan, the employer sets up a special savings and investment account with an investment company, a bank trust dept, or an insurance company. The employee agrees to put part of his or her salary into the plan through automatic deductions each pay period. This money is deducted before the employee’s paycheck is taxed, so that it remains untaxed until it is taken out of the plan, often years or even decades later.
Employers frequently match employee contributions up to a certain level, sometimes by as much as 100 percent, but are not required to do so. The money in the plan is invested into one or more funds provided in the plan according to choices made by the employee. The plans usually are intended to earn money over a very long period of time, which is much less risky than short-term investing..
Employees like 401(k) plans for several reasons. The tax deferral an obvious plus. Others popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability to choose one’s own investments.
From India, Gurgaon
660In a 401(k) plan, the employer sets up a special savings and investment account with an investment company, a bank trust dept, or an insurance company. The employee agrees to put part of his or her salary into the plan through automatic deductions each pay period. This money is deducted before the employee’s paycheck is taxed, so that it remains untaxed until it is taken out of the plan, often years or even decades later.
Employers frequently match employee contributions up to a certain level, sometimes by as much as 100 percent, but are not required to do so. The money in the plan is invested into one or more funds provided in the plan according to choices made by the employee. The plans usually are intended to earn money over a very long period of time, which is much less risky than short-term investing..
Employees like 401(k) plans for several reasons. The tax deferral an obvious plus. Others popular features include the increased portability of this plan from one employer to another, the matching contributions, and the sense of control due to the ability to choose one’s own investments.
From India, Gurgaon
401K plan is a retirement plan in the US that both employees can contribute into - it is PRE tax dollars and also some companies match dollar to dollar a certain % of the amount
i.e. contribution limit for 2005 is 14,000 - company will match up to 5% of the contribution into the 401K plan - fund.
so a ee that contributes X amount of dollars the company will match up to 5% of the person's salary into the plan not exceeding the limits for that year - each year the limits generally increase.
401K plan is equal to RRSP plan in Canada similar rules apply
limits might differ in Canada -
also ee's can borrow against this if purchasing a house etc... tax free dollars.
hope this gives you some insight.
rekha
From United States, Saint Louis
i.e. contribution limit for 2005 is 14,000 - company will match up to 5% of the contribution into the 401K plan - fund.
so a ee that contributes X amount of dollars the company will match up to 5% of the person's salary into the plan not exceeding the limits for that year - each year the limits generally increase.
401K plan is equal to RRSP plan in Canada similar rules apply
limits might differ in Canada -
also ee's can borrow against this if purchasing a house etc... tax free dollars.
hope this gives you some insight.
rekha
From United States, Saint Louis
sorry i don’t know what india has to offer... but maybe you could shed some light for us.... :idea:
From United States, Saint Louis
From United States, Saint Louis
If you work r a USA company and you are paid on the payroll (even if you live in Indian) you may be eligible to participate in a 401(k) plan. 401(K) is a code given by the IRS for a certain type of retirement plan. You need to research defined contribution plans available in India. You may have something similar.
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Flexi Benefits Plan.doc