During the mid-eighties, the 401K became a household name. Before this time, many employers had to fight with rank and file employees to sign up for the company-sponsored 401K Plan. Today it is almost poisonous even to ask about the performance of one's 401K. One reason has to do with the increased expectations of returns that were prevalent during the Clinton administration. Many of us were unaware mutual funds could have negative returns! Free 401K Rollover Quote

However a substantial amount of retirement income in the U.S. seems to come from the 401K, while Social Security still remains the clear frontrunner. Therefore the relevance of the 401K cannot be overlooked for many reasons. Congress has increased the amount that an employee may contribute to his or her 401K,. Also has legislated certain catch-up provisions to aid in increase savings for those over the age of 50. In 2003, the most one can contribute is $12,000 and a $2000 catch-up provision exists for individuals over 50 years old. It seems plausible that our lawmakers want to see the 401K became an even greater portion of one's portfolio and minimize the need for Social Security.

Here are some facts you need to know:

1. 401K are usually comprised of mutual funds

2. Money in your 401K usually grows on a tax deferred basis

3. Choosing just any funds is not asset allocation

4. Loans are generally allowed but exercise with caution

5. 401K Matches are contingent on you staying with the company for a while (3, 5, or 7 years are common)

6. 10% Penalty may apply if you take funds before 59 1/2

Exceptions to 10% Penalty that may apply:

Higher Education
First Home Purchase
If Health Bills exceed 7.5% of Adjusted Gross Income
Over age of 59 1/2
If 55 years old and separated from your company (Important - must be retired )
T-72 Regular and substantial & equal distribution ( You decide to have $600 a month taken out of your account each month) (All rules are subject to change, therefore consult a financial advisor or tax professional)

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