Published1 min read
Making Sense of Your 401(k): A First Step for Families
What is a 401(k)?
A 401(k) is a retirement savings account offered through your employer. You set aside a portion of each paycheck (pre-tax or after-tax) into the account to use later in retirement.
Its two biggest advantages:
- Tax benefits: In a traditional 401(k), money goes in before taxes, and the investments grow tax-deferred until you withdraw them in retirement.
- Employer match: Many employers "match" part of what you contribute. If you put in 6% of your pay and the company adds 3%, that extra 3% is essentially free money.
Always capture the full match
If your budget is tight and you remember only one thing, make it this: contribute at least enough to get the full employer match. Skipping the match is like turning down a raise your employer is offering you.
Traditional vs. Roth 401(k)
| Type | Going in | Coming out |
|---|---|---|
| Traditional | No tax | Taxed |
| Roth | Taxed | No tax |
Younger families with lower income today often lean toward Roth; families closer to retirement with higher income today may prefer traditional. It depends on your situation.
This article is for education only and is not personal financial advice. Please consult a licensed professional before deciding.
Content is for education only and is not professional financial advice.