Having a secure financial future is something that interests many individuals. It is crucial that these people look forward with the proper knowledge and understanding in order to create a solid investment for their retirement. Planning a 401k fund is something that must be approached with both a certain expediency and timeliness, while leaving room for future expansion. If one chooses to enter into a 401k, let them not hesitate, for procrastination could lead to countless money wasted. But they would be urged not to invest too heavily in any one stock, for these stocks might fall, leaving them with nothing to show for years down the line. It would be more judicious to diversify, either by investing a small sum in several different stocks, or by investing in a few stocks more heavily. For younger people, the aggressive action of large investments may very well produce high dividends, but employees who do this are gambling a great deal because they are placing lots of money into one account, and could lose most of their investment if they are not careful. Older workers, on the other hand, are encouraged to split their investments into separate accounts, which alllows for more stability. This practice has less potential for profit, but again reduces risk.

The simplicity of the 401k is that the money is withdrawn before taxes and is invested in your choice of stocks and/or bonds. As this money grows, you do not pay any taxes on it. Employers may also match your money, but this is variable, with no company requirement to do so. The total amount that can be given between employee and employer contributions is the lesser of 100% of the employees compensation or $45,000 for 2007.

Withdrawals from your 401k before age 59 1/2 are subject to an additional 10% tax, but those who turn 55 in the calendar year of their retirement are not subject to this penalty. Some exceptions apply. The employee's death or the employee's total and permanent disability exempt one from this penalty. Employees can borrow up to fifty-percent from the account balance to a maximum of $50,000. If they have withdrawn from the plan in the twelve months preceding, they can only borrow fifty percent of their money up to $50,000, minus the balance on the previous loan. This loan must be paid back within the next five years with the exception of home purchases, which are eligible for a longer payback period.

You still must pay interest on this loan, with most plans setting the interest rate at that which banks lend to their most credit worthy borrowers, plus an additional one or two percent. You will eventually receive this money in divided allotments at or near retirement. The interest you pay back into your 401k plan is untaxed.

There is a maximum limit on the total yearly pre-tax salary deferral. The limit is $15,500 for the year 2007. For future years, the limit will be amended for inflation, increasing in increments of $500. Employees who are 50 and over at any time during the same calendar year are now allowed additional pre-tax "catch up" contributions of up to $5,000 for 2007. The limit for future "catch up" contributions will also be adjusted for inflation in increments of $500. If the employee contributes more than the maximum pre-tax limit in a given year, the excess must be withdrawn by April 15th of the following year. If this violation is taken care of too late, the employee may have to pay taxes on the excess. The excess contribution, as well as the earnings on it, is considered "non-qualified" and cannot remain in a tested retirement plan such as a 401k.

You are excluded from a 401k if you have not completed a year of service or are under the age of 21. Also, those who made a collective bargaining agreement and were the subject of good faith bargaining are also not included. Likewise, union members, non US citizens, and part-time workers may be unfit for a 401k plan. Furthermore, some companies do not participate in 401k plans, so you must check with your employer first to see if you are eligible.