What Is A 401(k)?

by | Feb 25, 2023 | 401k

What Is A 401(k)?




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A 401(k) is a retirement savings plan that allows workers to save and invest for their future. It is an employer-sponsored plan that is funded by employee contributions and, in some cases, employer contributions.

The 401(k) plan was created in 1978 as an incentive for employers to offer retirement benefits to their employees. It has since become one of the most popular retirement savings vehicles in the United States.

In a 401(k) plan, employees can choose to contribute a portion of their pre-tax earnings to an individual retirement account (IRA). The money is then invested in a variety of assets, such as stocks, bonds, and mutual funds.

Employees can also choose to have their employer contribute to their 401(k) plan. Employer contributions are typically made in the form of a matching contribution. This means that the employer will match the employee’s contribution up to a certain percentage of their salary.

The money in a 401(k) plan grows tax-free until it is withdrawn. When the money is withdrawn, it is taxed as ordinary income. There are also penalties for early withdrawal, so it is important to understand the rules and regulations before withdrawing any money.

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Overall, a 401(k) plan can be a great way to save for retirement. It allows employees to save pre-tax dollars and invest in a variety of assets. It also allows employers to provide their employees with a valuable benefit.

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