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An after-tax 401 (k) allows savers to put after-tax money into a 401 (k) account, and that money can grow on a tax-deferred basis until retirement.
This may come as a surprise, because there is some confusion around how retirement accounts work. People often refer to retirement accounts like 401 (k)s as tax-advantaged, or tax-deferred.
Traditional IRAs and 401 (k)s offer tax-deferred growth, meaning you don’t pay taxes on the contributions or investment earnings until you withdraw the funds in retirement.
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. This pre-tax option is what makes 401 (k) plans attractive to employees, and many employers offer ...
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.
Based on 401 (k) withdrawal rules, if you withdraw money from a traditional 401 (k) before age 59½, you will face — in addition to the standard taxes — a 10% early withdrawal penalty. Why?
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