Know Your 401(k) Words

If you’re like many workers, you contribute to a company-sponsored 401(k) plan, but you might not understand all the financial jargon that comes with one. If you’re among the justifiably confused, some of these definitions may clear up any uncertainty.

Beneficiary

As with a life insurance policy, you’ll need to name one or more beneficiaries of your 401(k) plan so its assets can pass as intended in the event of your death.

Contribution Limit

In 2019, you may contribute up to $19,000 plus another $6,000 if you’re at least age 50. Your plan, however, may have different limits, so ask about them.

Distributions

The IRS refers to withdrawals as distributions. Taking distributions before age 59 1/2 will cause you to pay a penalty and income tax on the amount, with a few exceptions.

Match

That’s how much of your contributions an employer matches. Make it a point to contribute enough to take full advantage of the match.

Required Minimum Distributions

This mouthful is better known as RMDs. They are not space movie robots, but required withdrawals you generally must begin taking at age 70 1/2. Failure to do so may result in you having to pay a penalty.

Vested Interest

Your contributions belong to you, but you may not immediately vest fully in your employer’s match, which can take up to five years.

Jump Start

Now that you know a few more 401(k) plan words, take the next step and begin contributing more. The retired you will appreciate your early efforts.