What Is A 401k? How to Invest For Your Future Retirement
One of the best decisions you can make is investing in your company 401k.
What is a 401k and How Does It Work?
A 401k or 401(k) is a tax-advantaged account created by the government in the late 1970s and it is used to contribute money for your future retirement. This money and investment earnings are not taxed until you begin to withdrawal during your retirement.
The Types of 401k Accounts
- Traditional 401k: The most common 401k employers tend to offer and you’ll invest in the funds that are within this plan. - Self-directed 401k: Similar to the traditional 401k, but employees have more investment options than just what is included in the traditional. - Safe-harbor 401k: Contributions from employers are fully vested right away and there are different employer contribution limits compared to the previous two.
The Types of 401k Accounts
- SIMPLE 401k: A 401k plan for companies who have under 100 employees, basically for small businesses. - Roth 401k: Compared to the other plans, this one is a fairly new option. This plan is for those who think they will be in a higher tax bracket in the future. - Tiered-Profit Sharing 401k: If your company is under 50 employees, they may do profit sharing contributions instead.
The Benefits of a 401k
- Boost financial security for retirement - Contributions added automatically via your paycheck - Can reduce your current taxable income - Your investment earnings are not taxed until withdrawal - Starting early allows compound interest to grow significantly
Benefits for Employees
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