401(K)

Benefits of a 401(k) Plan

The benefits of a 401(k) plan include tax advantages, as contributions are made with pre-tax dollars, reducing your taxable income and allowing earnings to grow tax-deferred until withdrawal during retirement; employer matching, where many employers match a portion of your contributions, providing additional free money towards your retirement savings; automatic contributions through convenient automatic payroll deductions, making saving for retirement easy and consistent; access to a variety of investment choices, including mutual funds, stocks, and bonds, allowing for portfolio diversification; and high contribution limits, enabling substantial retirement savings with a limit of $22,500 for 2024, plus an additional catch-up contribution of $7,500 for those aged 50 and older.

Types of 401(k) Plans

Traditional 401(k), where contributions are made with pre-tax dollars and taxes are paid upon withdrawal during retirement; the Roth 401(k), with contributions made using after-tax dollars and qualified withdrawals in retirement being tax-free; the Solo 401(k), designed for self-employed individuals and small business owners without employees, offering both traditional and Roth options; the Safe Harbor 401(k), which simplifies administration for employers by meeting specific IRS requirements and includes mandatory employer contributions with immediate vesting; and the SIMPLE 401(k), tailored for small businesses with 100 or fewer employees, requiring employer contributions and featuring simpler rules and lower administrative costs.