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Question 1

“Retirement accounts like the 401(k) are a cornerstone of employer-sponsored savings in many workplaces. Understanding what the vehicle actually is helps you use it effectively: a 401(k) is a tax-advantaged account employers offer so employees can save from each paycheck for retirement. Historically, employer plans grew from the desire to provide workers a steady income after leaving the workforce; over time rules were added to encourage participation and to protect plan assets. For a beginner, the key practical points are who can contribute, how employer contributions might work, and the basic tax trade-off — you either pay tax now or later. This short primer sets up the question: what, in plain terms, is a 401(k)? The goal here is to separate the account type from related concepts (like IRAs or employer pension plans) and to clarify its role as an employee-directed savings vehicle administered through an employer.”

Which phrase best describes a 401(k) plan?

Did You Also Know...

By Wise Wallet

A backdoor Roth is a legal technique some high earners use to get Roth tax treatment by converting nondeductible IRA funds.