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What should you know about 401k plans offered by Principal?

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Quick Answer

A 401(k) plan from Principal Financial Group features automatic payroll deductions and matched contributions from select employers, according to the company's website. Principal's 401(k) plans reduce tax liability while providing an opportunity to grow retirement savings over a long term with varied investment options.

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Full Answer

A 401(k) is the most common defined contribution plan, reports CNN Money. An employee chooses a contribution amount, and his employer deducts this amount from his wages, pre-tax. The funds are invested in a range of mutual funds, according to the employee's specifications. An employer serves as a sponsor for a 401(k) plan, but a third-party company manages the plan, most typically a brokerage firm, an insurance company or a mutual fund company. This third-party company oversees the plans and investments on behalf of the employer.

There are some restrictions associated with 401(k) plans, according to CNN Money. The funds from a 401(k) plan are not accessible until the account holder reaches age 59 1/2 years. An individual withdrawing funds at an earlier age is subject to a 10 percent penalty. Those removing funds early must also pay income taxes on the withdrawn funds. There are some situations in which the Internal Revenue Service waives the 10 percent penalty, such as when the account holder incurs expenses after experiencing a sudden disability.

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