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When saving for retirement, many Americans frequently opt for 401(k) plans. What differs it, though? Here is all the information you require.
A 401(k) plan is one of the most popular retirement plans. Even though the plan is unique to the United States of America, it is considered a global benchmark in retirement planning. Moreover, Non-Resident Indians (NRIs) who return to India after working in the U.S. usually have a 401(k) plan they need to take care of.
So, here is a quick guide to help you understand 401k in India retirement plans:
The employer-sponsored 401(k) plan allows employees to decide the amount they wish to contribute, which is deducted from their monthly paychecks. The money deducted is further invested in a chosen plan for the long term. This retirement plan allows employees to invest in stocks, bonds, mutual funds, etc.
In an EPF, employees contribute a defined share of their salary, and the employer contributes the same.
In 2022, 401(k) contribution limits for individuals are $20,500, or $27,000 if you’re 50 or older. As per EPF rules, all employees earning more than ₹15,000 have to contribute 12% of their wage plus dearness and retaining allowance towards EPF. The employer contributes the same percentage. The employee can also choose to increase the contribution percentage. That said, for establishments with less than 20 employees, the contribution rate for both employer and employee is 10%.
Despite its popularity, 401k retirement plans are not the ideal plan because:
Overall, 401(k) plans in the USA or EPF plans in India are standard plans beneficial for retirees only if clubbed with other wiser 401k retirement plans like Kotak Lifetime Income Plan and Kotak Premier Pension Plan. The former assures lifetime income. At the same time, the latter allows retirees to accumulate significant retirement corpus with assured benefits on death and vesting. Make an informed choice!
Pension Funds In India – Meaning, Overview, How Do Pension Funds Work, Types, Pension Plan Features and Tax Benefits