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terminated within the first few years, the policyholders is generally hit with a surrender charge, which can be hefty at times. However, the policyholder can take out a loan (which is to be paid back with interest) against the accumulated amount in the annuity.

401(k) - Named after the IRS regulation section on retirement plans, the 401(k) is a pre-tax salary deduction plan used by many companies to encourage their employees to invest for their retirement. Since the contributions to the 401(k) plan are automatically deducted from one's salary prior to tax calculation and the returns are also tax-deferred, 401(k) is a great way to reduce taxable income in the working years and defer that until retirement years when most people are under lower tax brackets. Employees can choose from a number of different investments made available by the company which could include stocks, bonds, and mutual funds, or a combination of them. Many companies also match, up to a certain amount, the 401(k) contributions made by the employees, making it even more enticing for the employees to participate (e.g. 50% match, such that for every $100 contributed, the company adds $50). There are federal limits on how much a person can annually contribute to the 401(k) plan. The maximum amount for year 2000 was the lesser of $10,500 or 15% of annual salary. The plan participant can begin withdrawing from the plan at age 59 1/2 at which time the withdrawals will be subject to income tax. At 70 1/2 the participant must begin withdrawing if she hasn't done so yet.

Withdrawing sooner than 59 1/2 from the plan would not only be subject to income tax, but also it would generally be subject to a 10% additional penalty. But in many cases you can borrow against the funds in your plan and the interest on the loan is actually deposited into your own account as you repay the loan. If you have a 401(k) plan available and you are not participating, you are throwing money away by paying …