What is 401(k)?

1 min read

A 401(k) plan is a retirement savings account sponsored by your employer, and it allows you to save a portion of your pre-tax income for your future. 401(k) comes from the Internal Revenue Code section regulating these plans.

One of the main benefits of a 401(k) plan is that it lowers your taxable income. For example, earning $50,000 a year and contributing 10% to your 401(k), you'll only pay taxes on $45,000. This means you'll save money on taxes now and let your savings grow tax-deferred until you withdraw them in retirement.

Another benefit of a 401(k) plan is that many employers offer matching contributions. If your employer matches 50% of your contributions up to 6% of your salary, they will add 3% to your account. That's free money for retirement!

So, should you enroll in a 401(k)? If your employer offers a matching contribution, you should contribute enough to get the full match. That's a guaranteed return on your investment. Beyond that, you should weigh the pros and cons of saving more in your 401(k) versus other options, such as an IRA.

A 401(k) plan is an excellent way to save for retirement, but managing your investments can be challenging. Our 401(k) Optimizer helps you minimize fees in your 401(k) while maximizing returns. Let us help you save millions more for retirement.

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