In the year 1978, the Congress held a meeting and got the Tax Reform Act passed. This act was mainly passed to encourage the American citizens to save money for their retirement years. The Tax Reform Act made a way for the citizens to save for retirement, lowering their federal and state taxes at the same time. Part of this act was to create a tax – deferring employee savings plan. This plan was named the 401 K retirement plan. The plan was named from the section and paragraph number as mentioned in the Internal Revenue Code. A benefits consultant named Ted Benna was the person to introduce the first version of the 401 (K) retirement plan.
The IRS officially accepted the 401 (K) retirement plan and issued the regulations in 1981. From 1982, the plan was made functional and tax payers got to take advantage of the 401 (K) retirement plan for the first time. Almost a decade later, in 1991, the final regulations were published.
Benefits of 401 (K) retirement plan:
Wondering what are the advantages of this so talked about retirement plan? Here is a quick view of what it has on its platter for you:
- Employer match programs - free money from employer
- Tax benefit - lowest taxable income
- Customization and flexibility in investment – You need not worry about making deposits as savings and earnings keep accumulating
- Withdrawal of loans and hardships – This plans also brings along an opportunity to retire and without having to worry about any money matters anymore
