Retirement Savings: What Is A 401K
How does a 401(k) work? What are the benefits of having a 401(k) plan? Learn more about the 401(k) to see if it should be a part of your retirement plan.
Of all the various retirement investment options available to workers, the 401(k) is probably the most well-known. The 401(k) plan, named for the section of the Internal Revenue Code which authorized the use of the plan in 1978, is a retirement plan offered through an employer.
These plans gained popularity among employers in the 1980s as an alternative to pensions and are equally popular with employees thanks to their portability, employer matching contributions, and increased control over how money is invested.
How Does a 401K Work?
Contributions are automatically deducted—before tax—from an employee’s paycheck, which makes it one of the easiest ways to increase your retirement savings. Employees select the percentage of pay they want deducted from each paycheck and funds are automatically deposited into the employee’s 401(k) plan. Account holders are able to choose from a range of investment options within the 401(k), which are composed of stocks, bonds, and money market investments.
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