A 401(k) plan is an employer-sponsored retirement savings plan that allows you to save on a tax-advantaged basis. There are two types of 401(k) contributions: Traditional and Roth.
Traditional contributions allow you to save pre-tax income from your paycheck, meaning income taxes are not withheld on these amounts today but will be taken when you withdraw the funds in the future.
Roth contributions are a way to save after paying income taxes (no deduction today), but your withdrawal upon retirement is not subject to income taxes. Some employers may choose to match their employees’ deferral contributions, helping them to grow their retirement savings further.
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