My 401k plan


401k plan is a type of retirement savings account established by an employer with the contributions from both employee and employer. The contribution of an employee is taken from his or her paycheck/ salary. Then, it is invested over time until one retires and decide to withdraw the money. The minimum age to withdraw is 59 1/2 years. My company’s 401k plan allows the participants to choose whether their plans are managed by professionals or by themselves. There are 9 funds to choose from: money market, bond fund, large-cap core, large-cap growth, mid-cap core, mid-cap growth, small-cap core, and international multi-cap core. Cap stands for capital, so large-cap companies are big companies with a market capitalization value of more than $10 billion. Mid-cap companies have market value of $2-$10 billion, and small-cap companies have value of $300 million to $2 billion. The key is to diversify my money in these 9 funds. I decide to manage my plan and I have to spread my savings among more than one type of investment.

Here is an example of asset allocations based on age:

Benefits of 401k:
-Tax savings: my contribution is not subjective to federal income taxes. About state and local taxes, I still have to find out. Depending on your location, you can save on those taxes as well
-Company matching: my company matches my contribution dollar-to dollar up to 6% of my pay per Plan year. The limit of 2011 personal contribution to employer’s 401k is $16,500. If I max out my contribution, the total will be $16,500 plus 6% of my annual pay.

There are some other concepts you need to know:
-Compounding interest: the interest of 401k or a savings account will be added back to the accounts to earn more money.
-Rate of return: money invested in 401k plan does not guaranteed gains over a period of time. The 2008 economic crisis probably destroys retirement funds of lots, lots of people. The people who take advantage are the fund managers. They take the administrative fee and do not care about their clients losing money. I highly recommend the documentary film “Inside Job” if you have not watched it. That’s the reason why I do not trust somebody to manage my investment and I want to learn how to invest by my own.
-More risk, more return but make sure you have to diversify to minimize your risk of losing money.
-Asset allocation: mix of investments in stocks, bonds, real estate, and cash.

You can also find out more about individual investing strategies at the website of the Department of Labor:

One thing I want to point out about resource in the United States. It is plenty, like water in the sea but not everyone utilizes it. In contrast, students in my home country do not have enough books to borrow from library and sometimes cannot check out the available ones. Opportunities are always there, but you just need to realize and take them.

Do you have a retirement account? Do you have any kind of investment? Is it losing or making money?


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