• augmom 11:58 am on December 14, 2009 Permalink

    A pension plan is funded by your company. Pension plans are becoming less and less common. Basically, your company will pay you a certain amount of $ per month when you retire based on your age at retirement, your number of years with the company, and your average salary while you worked there.

    A 401(k) is funded by you. Sometimes the company will "match" your contributions somewhat — a typically "match" is 50 cents on the dollar up to the first 6% of your contributions. You specify a certain % of your salary to go to your 401(k) — I think the maximum is $14,000 or $15,000 per year. The money is yours right away, but you must leave it in the 401(k) plan till you are at least 59-1/2 yrs old, otherwise you will be penalized for taking an "early withdrawal".

    Hope this helps. This is just the BARE BONES BASICS — there’s tons more to learn, but no point in overwhelming you if this is all new to you right now!

    If your company offers a 401(k), they probably also have some materials that will explain the ins and outs of the 401(k) plan. You should read that, and also talk to someone in your HR or benefits dept (whichever is the one that administers the 401(k)) — they should be able to give you some good basic information as well.

    Good luck! :)

  • dillon Y 11:58 am on December 14, 2009 Permalink

    A 401K is generally contributed out of the earnings of the employee and sometimes those contributions are matched by the employer.

    A pension plan generally is 100% contributions from the employer and none from the employee.

    Consult with a Certified Financial Planner, Investment Advisor in your area. Know what your goals are before you meet with them. (not just to make a lot of money) but how much you want to contribute until you retire, when you want to retire and what you want to do when you retire.

  • justatexascpa 11:58 am on December 14, 2009 Permalink

    Pension is funded purely by the employer and generally based upon length of employment. Most employers no longer offer pensions.

    401k’s are tax-deferred investment vehicles provided by employers whereby employees contribute monies (as a percentage of their gross salary) on a pre-tax basis into an investment account. Employees can select specific investments generally mutual funds or company stock (if the company is publicly held), from a list of investments chosen by the employer. Employers will then generally match an employee’s contribution up to certain levels.

    You can google "how to invest in a 401k" and get loads of information.