A 401(k) plan is a US tax-advantaged retirement account established by employers for their employees.
It is a company-sponsored account that employees can contribute to meet their retirement goals. Employers can match some or all of the contributions via automatic payroll withholding.
A 401(k) is known as a defined contribution (DC) plan.
A 401(k) plan is eligible for tax benefits. What you make in a traditional 401(k) plan are not taxed until you withdraw that money, which is usually after retirement. In a Roth 401(k) plan, withdrawals can be tax-free because they were taxed beforehand.
Employers match their employee contributions using different formulas. An example might be 50 cents or one dollar from the employer per dollar that the employee contributes.
There are two types of 401(k) accounts: a traditional 401(k)s and Roth 401(k)s, which is sometimes called a “designated Roth account.” The two are taxed in different ways.
An employer and an employee can make contributions to the 401(k). In traditional pensions, the employer provides the employee specific amount of money upon retirement.
This depends on you. The rule of thumb is 10% of gross salary for a start.
In 2020, the basic limit on employee contributions are $19,500 per year for workers under age 50. For those ages 50 and up, it is $26,000.
If the employer also contributes, the total contribution for workers under 50 is set at a limit of $57,000, or 100% of employee compensation, whichever is lower. The limit is $63,500 for those 50 and over.
Once your money is in a 401(k), it may be hard to make withdrawals without penalties.
In a traditional 401(k), the earnings are tax-deferred. In the case of Roth 401(k)s, it is tax-free. When you make a withdrawal from a traditional 401(k), the money will be taxed as ordinary income. Roth accounts owners will owe no tax on their withdrawals (because they have already paid income tax).
Both traditional and Roth 401(k) owners must be at least age 59½ years old when they make withdrawals. In addition, the owners must have held their Roth 401(k) account for at least five years. Ask your advisor for details.
At Cross Border Wealth, we offer strategic and tactical asset allocation and provide a range of investment solutions. We cater to your needs and preferences and tailor all our services to your expectations. Wherever in the world you are, we’ve got your back.
Our Approach: How We Partner With Clients
In today’s complex market and regulatory environment, we understand the continued need for innovative investment solutions and implementation expertise.
Deep bench of expertise
We draw on specialized experts including actuaries, risk managers and strategists. We also engage investment professionals spanning asset classes, including credit and rates teams with, on average, over a decade of experience.1
Strategic insights and knowledge transfer
We address our clients’ key challenges and provide timely insights on a variety of topics relevant to the pension landscape, including real-time viewpoints on market and regulatory changes, liability management perspectives and corporate finance.
Holistic implementation approach
We take a holistic approach to portfolio management and provide tailored investment strategies, with a highly curated investment approach and fiduciary mindset.
Extensive risk management
To directly align our investment process with a client's objectives, we leverage sophisticated analytics and dynamic portfolio monitoring that provide our clients with oversight throughout the investment process.
Plan-specific considerations, including:
Bespoke portfolio solutions through:
Portfolio solutions, utilizing a proprietary, fully integrated risk management system, including:
Examples of Our Partnership with Clients
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