A Comprehensive Guide to Understanding 401(k) Plans
What Is a 401(k) Plan?
A 401(k) plan is a retirement savings account offered by employers that allows employees to save money on a tax-deferred basis. Contributions to a 401(k) plan reduce your taxable income, making it an attractive option for many.
How Do 401(k) Plans Work?
Employees can contribute a portion of their salary to their 401(k) plan. Some employers also offer matching contributions, which can significantly increase your retirement savings.
Tax Benefits of 401(k) Plans
- Tax-Deductible Contributions: Reduces your taxable income.
- Tax-Deferred Growth: Earnings grow tax-free until withdrawal.
What Happens If You Leave a Job?
If you leave your job, you can roll over your 401(k) balance to another retirement account, withdraw the funds, or leave them in your current plan, subject to specific rules.
Additional Retirement Savings Options
Besides 401(k) plans, consider IRAs, Roth IRAs, and other investment opportunities to diversify your retirement savings strategy.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.