Wise financial investing and planning now will help assist your family on their way to financial stability in the future when retirement enters the scene, especially in this turmoil-full economic down turning slump. Daily we are forced to remember the problems as the news tells us about soaring unemployment rates, showing the drama of those whose houses have been foreclosed, and reminding us of the federal deficit as the government works its way further into debt. Those of us who are young know that we cannot rely on the government to provide us with Social Security money. We must rise and find a better way to save for our future since the government has failed to provide what they have promised us over the years. Instead through hard work and research we must find the best way to bring stability to our future family for retirement. In order to do this it is important to answer detrimental questions like what is the basic structure of a 401k plan? Although there is more to investing than just 401k plans, here is a bit of information that will give you a start for your research to answer your question.

What is the Basic Structure of a 401k Plan?

There is no simple answer to an in-depth question such as this one. In fact there are three main structures to a 401k plan. Before we get into the each individual plan it is important to acknowledge that these three plans are not something that the employee is allowed to choose. Nor can you get a 401k plan without being employed as you can only receive a 401k plan through your employer. Other stipulations are that you must have been working for the company more than a year and are the above the age of twenty-one. Know that it is the right of the employer to pick which 401k plan that will arrange for their employees. The three 401k plans are called Traditional 401k, Safe Harbor 401k and SIMPLE 401k.

What is the Basic Structure of a 401k plan for Traditional, SIMPLE and Safe Harbor?

The basic structure of these plans all deal with the contributions the employee and employer are allowed to make. Traditional plan allows for matching employee contribution or putting a percentage of the employee’s wages by the employer. SIMPLE plan sets limits on employer matching contributions by the employee on dollar-for-dollar, up to about three percent or only two percent of employee’s wages. Safe Harbor is a dollar-for-dollar up to three percent of employee contributions and then the employers are limited to fifty cents per dollar up to five percent of contributions.

Asking the Right Questions

Although this answer has not fully answered your question of what is the basic structure of a 401k plan, it will set you on the right path. With a brief explanation of what is the basic structure of a 401k plan, you have the tools to ask the right questions to approach your employer or financial planner.