A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a portion of their paycheck before taxes are taken out. When employees retire, they can use the money in their 401(k) to help pay for living expenses.
The biggest advantages of a 401(k) are that it offers tax-deferred growth of your investments and it may offer employer matching contributions. This means that your money can grow faster than it would in a regular savings account because you’re not paying taxes on the earnings each year. And if your employer offers matching contributions, you can get free money to help grow your nest egg.
However, there are some disadvantages to consider as well. For example, you may have to pay taxes and penalties if you withdraw money from your 401(k) before age 59 1/2. And if your employer goes out of business, you could lose some or all of your 401(k) savings.
401(k)s are just one type of retirement savings plan available to workers. If you’re thinking about saving for retirement, consider all of your options and talk to a financial advisor to find the best solution for you.