Current income taxes are deferred on both employer and employee contributions and all investment earnings, until the money is withdrawn from the plan. In short, this is a report is a summary of a plan s financial statement and income tax filing. The upshot of it is that your retirement money is not considered an asset of your employer, it is held in trust in a separate account for you . Also, your company cannot access your plan money for any purpose related to maintaining its business. The plan provider invests your contributions into some form of moneymaking venture that will give a return on the investment, most commonly mutual funds.
Mutual funds are a portfolio of stocks that are purchased to reduce the risk of the investment.
There are different types of funds, ranging from conservative to aggressive. Once you have decides how much of your income to contribute, you have to decide if you are to invest it conservative or aggressive or somewhere in between. The younger that you are the more aggressive you can afford to be and as you get older you should shift you contributions to a more conservative investment. Your company may allow you to change your contributions as in frequently as twice a year or many plan providers will allow you to shift your contributions daily by providing access through the Internet. Kapoor, Jack R., Les R. Dlabay, and Robert J. Hughes, Personal Finance, Fourth Edition. , Irwin Publishers, 1996.