Want to know it? How Does 401k Work
By: Want To Know It
If you have recently become employed, you may want to know what 401k is and how it work. This post will take you through how a 401k retirement plan works.
How Does 4o1k Work?
A 401k is basically a retirement plan allowing current workers to save for the future. A 401k plan is actually fairly simple to understand. An employee chooses to put away a certain amount of money each week. This is known as a ‘contribution’. Some employers will even match all or part of your payment as an incentive to put money in the 401k account. The money you put away will be invested by the 401k company. Most companies allow you to choose how the money is invested. When you retire, the account is close and all the funds go to you so you can enjoy your retirement. Employers can automatically enroll their employees in a 401k plan. However, an employee is allowed to opt-out if they so choose.
Two different 401k plans are available. Traditional 401k plans are the most common. The employee pays no income tax on the amount put into the 401k account. Tax is paid when the money is withdrawn from the account. Roth 401k accounts work differently. Income tax is either paid or withheld on all the money put into the 401k account. Therefore, when you retire and receive the money, you don’t have to pay any tax on it!
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