401k
A 401k is a retirement savings plan offered by many employers in the United States. It allows employees to save and invest a portion of their paycheck before taxes are taken out. Taxes are paid when the money is withdrawn, usually at retirement.
Employers often match contributions, meaning they add money to your 401k account based on how much you contribute. Investment options typically include mutual funds, index funds, and company stock.
The main benefits of a 401k include tax-deferred growth, potential employer matching, and the ability to build wealth for retirement.
Key Points
- Employee retirement savings plan with tax benefits.
- Contributions are made before income tax is deducted.
- Withdrawals are usually taxed as ordinary income.
- Employers may offer matching contributions.
- Early withdrawals before age 59½ may incur penalties.
