Congress authorized the creation of 401(k) plans in 1981, and today they’re governed by the U.S. Department of Labor.

Although the government sets general regulations for 401(k) plans, plan administrators and employers may follow these regulations in a variety of ways.

For example, regulations allow 401(k) plans to permit hardship withdrawals, but 401(k) plans don’t have to do so. Employers can also match your plan contributions in varying amounts, or not at all.

As a result, when you enroll in a 401(k) plan, it’s a good idea to familiarize yourself with your plan’s policies. Your plan administrator or employer will probably offer a welcome packet explaining everything you need to know.

Join Cake Financial Today for FREE!

So you’re interested in transferring your IRA assets.

When you change jobs or retire, you can roll your 401(k) assets into another 401(k) plan, if available, or an IRA.

There are two ways you can do this.

First, you can make a direct rollover. This means the check goes directly from your current plan to your new plan. Because you never touch the money, taxes aren’t withheld.

A direct rollover is a good idea if it’s available, because the other option—an indirect rollover—can get tricky. With an indirect rollover, the check goes from your current plan to you, and you send it to your new plan. The problem is, your plan withholds 20 percent of your money and sends it to the IRS. The remaining 80 percent, which you receive, must be deposited into a qualified retirement plan within 60 days, or it’s subject to a 10 percent penalty. The good news: If you do put the remaining 80 percent in a qualified retirement plan, you can recover the 20 percent sent to the IRS by submitting a special form with your next tax return. When you get the 20 percent back, however, it also has to be deposited in a qualified retirement account within 60 days, or—you guessed it—it’s subject to a 10 percent penalty.

Join Cake Financial Today for FREE!

You may not be the only one contributing to your 401(k) plan, thanks to employer matches.

What does that mean? Simply that your employer might match part or all of your 401(k) plan contributions. For example, your employer might match 100% of the first 4% you contribute and 50% of the second 2% you contribute.

That can really add up. Let’s say you make $100,000 pear year and contribute 10% to your 401(k) plan. That makes your annual contribution is $10,000. Your employer matches your first 4% dollar-for-dollar, contributing $4,000. It matches your next 2 percent 50 cents on the dollar, contributing $1,000. You end up with $15,000 in your account—$5,000 more than you contributed!

Keep in mind that your employer’s contributions may not be vested for a certain number of years. In other words, they’ll be in your account, growing. But, if you leave the company within a specified time, you can’t take them with you.

Finally, there are limits as to how much your employer can contribute to your plan. Employer contributions can’t exceed 6 percent of your salary. And, the total employer and employee contributions can’t exceed the lesser or 100% of your salary or some other arbitrary amount. That amount is $46,000 in 2008, but will be adjusted for inflation thereafter.

Join Cake Financial Today for FREE!

If you’re taking a position with a new employer or even retiring, you’re faced with a major financial decision: what to do with the money in your 401(k) plan.

No problem! One of the benefits of a 401(k) plan is that it can follow you throughout your career, thanks to rollovers.

When you change jobs or retire, you have several options for your 401(k) plan. You can leave your money in the plan. Or, you can roll your money into another retirement plan—another 401(k) plan, if available, or an Individual Retirement Account, also called an IRA.

If you’re changing jobs and like the investment options in your new employer’s 401(k) plan, rolling your money into that plan might make life easier. With all of your retirement money in one account, it should be easier to track.

But, if you’re unsatisfied with the investment choices in your new employer’s 401(k) plan, or you’re retiring, you can open an IRA through a bank or brokerage firm. An IRA works much like a 401(k) plan: It allows your money to grow, untaxed, until you withdraw it in retirement.

Whether you want to roll your money into another 401(k) plan or an IRA, the new “custodian” –meaning the financial institution offering the plan—should have all the forms you need.

Join Cake Financial Today for FREE!

Generally speaking, you can start taking distributions from your 401(k) plan when you reach age 59½—but what if you want to take withdrawals earlier?

Uncle Sam is waiting to tax your money, and when he does, your nest egg may not be quite so plump. Twenty percent of your savings will be withheld immediately to pay federal income taxes, and you’ll have to pay any remaining federal taxes, as well as state and local taxes, when you file your taxes return. If you’re under age 59½ and still working, you may also be subject to a 10 percent early-withdrawal penalty.

Sometimes, however, you may have an emergency and need some extra cash. To help you in these times, 401(k) regulations allow for early withdrawals in a number of ways.

First, if your plan allows it, you can take a loan from your 401(k) account. There are limits as to how much you can borrow and how long you have to pay back the money, and you still have to pay interest—but at least you pay interest to yourself, not to a bank.

Second, you may be able to take what’s called a hardship withdrawal from your 401(k) plan, depending on your plan rules. Hardship means you need the money due to an immediate and severe financial need—to pay medical expenses, for example, or prevent foreclosure on your home. The bad news is, hardship withdrawals can be costly. At minimum, you’ll have to pay taxes on the withdrawal at your current income tax rate. In some cases, you may also have to pay an additional 10 percent penalty.

Join Cake Financial today for FREE!

Most of us spend so much time putting money into a 401(k) plan we forget about the fun part—how you take money out of your 401(k) plan.

Generally speaking, you can start taking distributions from your 401(k) plan when you reach age 59½. You can take a little at a time, or all the money at once. Or, you can keep the money in the plan and let it grow.

When you reach age 70½, however, you have to start taking distributions. There is one exception: If you’re working at the same company that offers your 401(k) plan, you may be able to keep the money in the plan.

Now, let’s say you’re a big saver and you want to retire early, before age 59½. Provided that you’re no longer working, you can start taking distributions as early as age 55.

Finally, regardless of when you take distributions, they’re are subject to federal, state and local income taxes.

Keep in mind that these are the rules for regular distributions. If you take withdrawals earlier than allowed, the consequences can be serious.

Join Cake Financial today for FREE!

If you have a 401(k) plan, you may be interested in contributing as much as you can. But how much is that?

It depends on many factors. First, government guidelines specify the maximum you can contribute to a 401(k) plan, and the maximum changes every year. In 2008, it’s $15,500. In 2009 and beyond, that number will be adjusted for inflation.

This figure doesn’t include any funds that your employer might graciously add to your account—and this is important, because many employers will also “match” your 401(k) plan contributions, in part or in full.

There are limits on the total employer and employee contributions. In 2008, they can’t exceed 100% of your salary or $46,000—whichever is lower. Again, in 2009 these limits will be adjusted for inflation.

Finally, keep in mind that these are just general guidelines, as 401(k) contribution rules are complex. Your 401(k) plan administrator or employer can provide more details.

Join Cake Financial today for FREE!

Most investors know what a what a 401(k) plan is, but many aren’t sure why they should consider one. After all, retirement may seem far away, and current expenses may seem more pressing.

It’s true that a 401(k) plan is designed to help you save for retirement. But it can also benefit you today. Let’s look at all of these advantages.

First, when you contribute money to a 401(k) plan, your income is reduced by the amount of the contribution—and that can decrease your income taxes.

Second, the money you put in a 401(k) plan grows, untaxed, until it’s withdrawn. That’s different from most investment accounts, where you have to pay taxes on interest, dividends and capital gains. So, with a 401(k) plan, you could experience higher overall investment returns. This can really add up, particularly if you’re a young worker with several decades to contribute.

Finally, when you do withdraw the money from your 401(k) plan, you’ll probably be in retirement, in which case you could be in a lower tax bracket—minimizing the taxes you have to pay on withdrawals.

Join Cake Financial today for FREE!

Government guidelines specify the maximum you can contribute to a 401(k) plan— $15,500 in 2008. But there’s one major exception to this rule—the catch-up contribution.

If you’re a young worker, you have decades to save for retirement. But if you’re older and are just starting now, saving for retirement may seem like a lost cause.

To help, the government lets older works contribute a little bit more to their 401(k) plans. If you turn 50 before the end of a calendar year, you’re eligible for a “catch-up contribution.”

How much? In 2008, you can contribute an additional $5,000, making you eligible for a total contribution of $20,500.

In 2009 and after, catch-up contribution limits will be indexed for inflation. Your plan administrator or employer can provide you with details.

Join Cake Financial today for FREE!

A 401(k) plan is a special type of investment account, offered by employers and designed to help you save for retirement.

You contribute money to your 401(k) plan through pre-tax payroll deductions. In other words, the money comes straight from your paycheck.

Once the money is in the 401(k) plan, you can then allocate it to different investments, depending on your plan. Usually, you can choose from a number of different mutual funds, including money market funds, bond funds, and stock funds.

Here’s the best part: While your money is in the 401(k) plan, any interest, dividends and capital gains on your investments aren’t taxed.

In fact, the money grows, untaxed, until you withdraw it in retirement. At that point, you pay income taxes on withdrawals at your regular income tax rate.

Join Cake Financial today for FREE!