Clear and personalized 401K information is necessary when planning for retirement. 401Ks are the most popular retirement funding vehicle utilized by businesses. They have special tax advantages for both employees and employers. 401K plans also present a benefit for attracting employees and retaining current employees.

401K Information: How It Works

401Ks are an elective qualified retirement plan. An elective retirement plan means that participation in the program is completely voluntary. Qualified retirement plans use pre-taxed dollars and grow tax deferred. An employee may "elect" to defer earnings into a separate retirement account. Employers may elect to match all or some of the employee's contributions. The matching of employee contributions is an attractive benefit for employees and it should be taken advantage of.

Once money is deposited into the 401K plan, it gets invested into any of the options available in the plan that you choose. Most 401K plans offer around 10 to 15 different investment options. These are typically mutual funds that invest in stocks, bonds or both. The invested capital then grows tax deferred until withdrawn at retirement age, usually 59 ½. There are penalties involved with the early withdrawal of funds, namely a 10 percent penalty tax and the withdrawn funds are treated as income. 401K plans do offer a tax free, penalty free loan option if access to funds is required.

The Internal Revenue Service is another source for very detailed 401K information. A financial advisor will also have 401K information on how to implement these valuable plans as well as helping choose which investment options to choose from.