What is a 401k plan in the USA?
Photo by Michael Longmire on Unsplash
This post may contain affiliate links. Please read our disclosure page.
A 401(k) is a retirement savings plan sponsored by an employer
The name 401(k) comes from the section of the U.S. tax code that it was derived from in the 1980s.
Simply put, 401(k) is the name of an account U.S. workers can use to save for retirement through their employer.
Company match
Employers may offer to match employees’ contributions up to a certain percentage. That’s essentially free money. The legal maximum amount you can save in your 401(k) changes every year.
You can leave your 401(k) with your employer’s plan administrator or you can roll it over into a new employer’s 401k plan or an IRA. There are withdrawal rules to follow.
Generally, you need reach age 59 ½ to start taking money out of your 401(k) otherwise you face a 10 percent early withdrawal penalty and income taxes on the amount withdrawn.
The best way to save for retirement in your working years is through a 401(k) or IRA.
You will need to start early. 401(k) is a Marathon, Not a Sprint.
And don’t put all your eggs in one basket. Start by spreading your money across several funds. They call it a diversified portfolio.
There you have it!
15 Important Criteria for Choosing the Best Place to Live in Retirement
80 Passive income and Side Hustle Ideas you can try today
10 Steps to Take if You Start Retirement Without any Savings
Mahugu Nuthu is a content creator known for his compelling and well-researched business analysis. His blog MHGcode.com, provides insights and proven strategies for effective entrepreneurship, side hustle hunting, passive income pursuit, small business ideas, saving and tips on slashing costs.
This information is for educational and entertainment purposes only. The information that is shared on MHGcode.com shall not be interpreted or construed as financial, accounting, legal or tax advice and should not be acted upon without further professional advice.
