A 401(k) plan is a retirement account that is funded through pre-tax payroll deductions and grows tax-deferred. These deductions, or contributions, are then invested in stocks, bonds, mutual funds, and other assets. Your employer may also make contributions to your account. Contributions to your 401(k) account, as well as any dividends, interest, and capital gains that accrue, are compounded over time and are not taxed until they are withdrawn.

Roth 401(k) Plans

A Roth 401(k) plan combines features of a traditional 401(k) plan and a Roth IRA. Roth 401(k) plans are only available to employees of businesses that offer this plan. Like traditional 401(k) plans, Roth 401(k) plans are funded through payroll deductions and grow tax-free. Like Roth IRA plans, contributions are made on a post-tax basis. Roth 401(k) plans do not have a maximum income limitation.

Advantages of Investing in a 401(k) Retirement Plan

The primary advantage of investing in a 401(k) plan is to save money for your retirement on a tax-deferred basis. Other advantages include:

• Flexibility to invest your money in a variety of assets based on your risk tolerance and investment goals.
• Ability to transfer your account to a new employer if you change jobs.
• Increasing your account balance with funds from employer match programs if offered by your employer.
• Ability to withdraw funds from your account before retirement as a loan or a hardship withdrawal (please be aware that significant penalties and fees may apply).

If you are a younger investor, there are significant advantages to starting your 401(k) savings early. Even modest contributions to your 401(k) plan early in your working life can result in substantial account balances when you reach retirement age.

If you are 50 years old or older, you may have the additional advantage of making “catch up” contributions to your 401(k) plan. Catch up contributions allow you to save more than the normal maximum annual contribution amount.

Your Allen & Company Financial Advisor can help you determine how you can use this popular retirement plan option to your benefit.

Payments taken prior to age 59 ½ may result in an additional 10% tax. If you receive a payment before you reach age 59 ½ and do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10% of the taxable portion of the payment. Allen & Company of Florida, Inc. does not provide tax or legal advice; investors need to consult with their own tax and legal advisors before taking any action that may have tax or legal consequences.