A Beginner’s Guide to 401(k) Plans: Unlocking the Potential of Employer-Sponsored Retirement Savings
<p>A 401(k) plan is a retirement savings plan sponsored by employers in the United States, designed to help employees build a nest egg for their future. Named after the section of the Internal Revenue Code that governs them, these plans allow you to allocate a portion of your pre-tax salary towards investments that can grow over time, providing a steady income stream in retirement.</p>
<p>The primary advantage of a 401(k) plan is the tax benefits it offers. Your contributions are made before taxes are calculated, effectively reducing your taxable income for the year. Additionally, the earnings on your investments grow tax-deferred, meaning you won’t pay taxes on your gains until you withdraw the funds in retirement.<em> This allows your retirement savings to compound at a faster rate compared to taxable accounts.</em></p>
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