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THE BASICS OF MONEY

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HOW TO INVEST, MANAGE YOUR MONEY AND SPEND WISELY

Home > Basics of Money > Getting Started

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Financial Advice from the
Founding Fathers
Their suggestions and ours might just help you forge your financial independence.
KIPLINGER'S MONEY POLL
Would you buy a GM car now that the company is going through bankruptcy?
Yes. I'm still confident in the company and product.
No. I'm concerned about service and warranty issues.
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RETIREMENT
SIMPLE 401(k)
This plan for small firms offers a nice cross between an IRA and 401(k).

Firms with fewer than 100 employees can establish what's called a SIMPLE plan, short for "savings incentive match plan for employees."

The company sets a percentage of each employee's pay that can be contributed to the plan, up to a maximum yearly amount determined by IRS Pension Plan Limits per employee. The employee chooses where the money goes, just as in a conventional 401(k).

In exchange for the simplicity of the plan, the employer must agree to contribute to workers' accounts, matching up to 3% of pay contributed to the plan, or, at a minimum, 2% of everyone's pay, even those who don't participate in the plan themselves.

Workers are vested immediately in the employer's contributions. All contributions -- the workers' and the company's -- grow tax-deferred as long as they remain in the account.

The SIMPLE 401(k) is a nice cross between an IRA and a 401(k). It allows a smaller maximum annual contribution than a conventional 401(k) but more than twice the limit of an IRA. Rules governing the plan are essentially the same as for a 401(k), with the exception that bailing out within the first two years of joining the plan raises the 10% early-withdrawal penalty to a whopping 25%.

Next: Employee Stock Ownership Plans and Profit-Sharing Plans



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