401k Annuity Plans

Workers in the USA are able to put up funds for use in later years when they retire. Through a worker’s 401k plan, a worker can save money as a retirement fund with income taxes that are deferred on the saved amount until its withdrawal in the future. A 401k annuity plan can help boost a worker’s retirement plan to provide a guaranteed sum regularly after retirement. This provides a workable solution to those who are wondering about whether or not their retirement funds will be able to provide them with a regular stream of income while they are still alive.

401k plans are made available by the Internal Revenue Code that was amended by the US Congress in 1978. This provision enables workers to choose to receive a portion of their income as deferred compensation rather than direct compensation. More often than not, this facility involves the sharing of the employers in the regular contributions. This is actually more inexpensive for employers to provide than the mandated defined benefit pension they have to pay to every worker who retires from their company. In 401k plans, employers only have to put up the necessary administration and support costs aside from their share in the employee contributions as well as profit sharing contributions.

This provision is also governed by rules of the Employee Retirement Income Security Act (ERISA) that has been in effect since 1974. Under these rules employees are obliged to inform its workers about their eligibility to participate in 401k plans as well as the company’s existing policies regarding retirement fund contributions. There are over 500,000 US companies that support 401k plans today. This provision that was originally only made available to corporate executives are now supporting retirement funding for workers in all levels in the corporate ladder. 401k plans offer lower contribution limits than the Individual Retirement Account (IRA) which is another option to prepare for funds for use in retirement years.

In recent years, 401k annuity plans have been devised as an option for workers who want to prepare for regular income instead of a lump sum after they retire. 401k annuity plans are bundled with an insurance product that makes assumptions and calculations to provide for regular annual withdrawals after the 401k benefits are payable. With this facility, a worker’s contribution is split between the 401k plan and an invested portion in an annuity. Workers can invest any amount following the regular 401k payment period aside from their 401k contribution. In exchange for this, workers will be eligible for a certain fixed monthly amount from the time they retire and for the rest of their lives.

401k annuity plans can either be fixed or variable. Fixed annuities offer a guaranteed amount to be disbursed to the retiree on a regular basis. Variable annuities, on the other hand, are anchored on an underlying basket of stocks and bonds whose performance will dictate how much income a retiree can get every month after retirement and for the rest of his life. There are fees that are imputed in the annuity portion of the workers’ contributions in 401k annuities. These annuity fees are considerable lower in 401k annuity plans than in regular annuities. Interest rates on annuities bundled with 401k plans are also advantageous to workers because interest rates are averaged throughout the investment period. This way, the worker is protected from interest rate fluctuations during his period of contribution.