Today’s Most Popular Plan
A 401(k) offers an appealing way to save. Named after the IRS section describing the program, a 401(k) allows you to set aside a part of your income into a tax-deferred account for retirement.
In the past, it was not unusual for a company to pay you a pension based on your salary and number of years you worked for them. Today, with a 401(k) plan, you are in control of saving for your own retirement.
What makes 401(k)s so popular? Some of the biggest reasons are these:
- You make automatic contributions before taxes are withheld from your paychecks. This immediately reduces your income tax withholding and tax liability, making it much easier to save.1
- Your investments grow tax deferred. The government does not tax any capital gains, dividends or interest until money is withdrawn.
- You can make saving and investment decisions based on your personal goals, tolerance for risk and time remaining until retirement. Many plans offer a wide range of investment options, giving you greater control over your own retirement destiny.
- The money you save in your retirement plan is portable, meaning you keep it if you change jobs or retire.
Some employers offer a 401(k) in conjunction with other retirement plans, such as a profit sharing plan, and also may include a Roth 401(k) deferral option.
1 Withdrawals from the tax-deferred account will be subject to federal and possibly state income tax.