How
they work: Earnings grow tax-deferred. Income taxes are owed on money that's
withdrawn. Most employers also kick in contributions to 401(k) plans,
matching savings up to a certain limit or percentage of an employee's salary.
Contribution limits: Individuals can save up to
$15,500 in 2007, and those who reach age 50 by the end of the year can save an
additional $5,000.
Income eligibility requirements:
None
Warnings: Withdraw the money
before age 59½ and you'll owe a 10 percent penalty on top of taxes. Likewise,
you must cash out at age 70½ or you'll pay a penalty of the 50 percent of the
minimum distribution amount.
Who they're for:
Any wage-earner whose employer allows them to participate in their plan.
