From the Education Center
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401(k) money management is critical to your long-term financial security. For participants, the return on their investments could be sev eral times the amount they save. In most 401(k) plans, your employer will offer you a range of investment funds from which to choose. Some 401(k) plans also offer other types of options, like a brokerage window or a professionally managed account.
Generally, four types of assets make up the investment funds in a 401(k) plan: stocks, bonds, cash, and real estate. Each of these has different traits, such as rate of return, purpose, risk, and appropriate time span for investment.
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The term stock options is thrown about in the financial world with regularity, especially with technology and growth companies. Most investors have heard of stock options, however many do not understand the working parts that make them a viable investing strategy.
In the following paragraph, eRollover will explain what a stock option is, how they trade, and what kind of investor should be involved with this type of securities transaction.
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SEPs and SIMPLE Retirement Plans. The minimum compensation for an employee that will require an employer contribution to a simplified employee pension plan remains $550 for 2010, and the 2010 annual limit for salary reduction contributions under a SIMPLE retirement plan (Savings Incentive Match Plan for Employees of Small Employers) remains $11,500.
401k, 403b, and 457 plan Contributions. The annual limit on contributions to Section 401k plans, Section 403b annuity contracts and eligible Section 457 plans remains $16,500 for 2010.
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Sales Charge (Load) on Purchases — the amount you pay when you buy shares in a mutual fund. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce the amount of your investment.
For example, let's say you have $1,000 and want to invest it in a mutual fund with a 5% front-end load. The $50 sales load you must pay comes off the top, and the remaining $950 will be invested in the fund. According to FINRA rules, a front-end load cannot be higher than 8.5% of your investment.
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In most cases, no. 401k contributions and contributions to a Roth IRA benefit from identical favored tax treatment over the life of the investment. Since the tax benefits of the two saving schemes are identical, an investor should be indifferent between the two types of saving on tax grounds. Plus, the Roth IRA is capped at $4,000 after-tax, while most 401k participants can invest much more than that before reaching the current 401k cap of $14,000 before-tax.
Since the tax treatments are identical, and the limit on the 401k contributions is much higher, you should continue to make unmatched contributions to your 401k until the maximum is reached. Diverting unmatched 401k contributions to a Roth will not give you additional tax saving, but will increase your transaction costs, and possibly management fees as well
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