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401 (k) In the United States, a 401 (k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401 (k) of the U.S. Internal Revenue Code. [1] Periodic employee contributions come directly out of their paychecks, and may be matched by the employer.
A 401 (k) plan is a tax-advantaged retirement savings tool offered by employers that allows eligible employees to contribute a portion of their salary up to a set amount each year.
401 (k) retirement plans also have benefits for employers — mainly as a way of competing for the best workers. Employers also can deduct contributions from their federal income taxes.
An after-tax 401(k) lets workers take greater advantage of their employer’s retirement plan.
Many employees accept the default investment option, typically a target-date fund – based on their projected retirement age – when signing up for a 401 (k), and never think anymore about it.
The third option is transferring your old 401 (k) savings to your new employer plan. You need to talk to the plan administrator about doing a direct transfer, avoiding all taxes and penalties ...
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