Even if youre young, its never too early to think aboutsaving for retirement.
But saving is integral to retirement, even if youre decades away from clocking out for the last time.
What Is a 401(k) and How Does it Work?
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So what is a 401(k) anyway?
it’s possible for you to do this pre- or post-tax.
Thats up from the 2024 limit of $23,000.
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What Does 401(k) Stand For?
The name 401(k) has no hidden meaning.
Yet, here we are.
Its like paying yourself in retirement.
Here are some of the best perks.
Think of your employers match as a part of your compensation package.
The money automatically comes out of each paycheck, so you never miss it.
That means the money you contribute now doesnt count as taxable income.
Youll pay taxes on it later on when you withdraw it.
You cant pick individual stocks and bonds to invest in.
you’re able to also borrow from your 401(k) under certain circumstances.
But just like any other loan, youll have to repay it with interest.
The bottom line: Dont treat your 401(k) like asavings account.
Its important to have anemergency fundin addition to a retirement plan.
Vesting
You might come across the term vesting when signing up for your 401(k).
Say your companys vesting schedule is two years.
Thats an incentive to stick around until youre fully vested.
How Do 401(k) Taxes Work?
Taxes for your 401(k) work in one of two ways.
In a traditional 401(k), you make pretax contributions.
With this pop in of account, youll pay taxes when you withdraw the funds after retirement.
Another option is a Roth 401(k), which taxes the contributions you make.
That means you withdraw the money tax-free upon retirement.
Traditional or Roth?
In this case, you might choose to stick with a traditional 401(k).
However, your employers contributions are always pre-tax, so youll be taxed when you withdraw the money.
Check with your employer to see if this is possible.
What Happens to Your 401(k) When You Quit?
You own the account, and its often managed by a third-party administrator.
If you quit or are fired, your money stays in the account.
If you roll it over into an IRA, youll be responsible for making contributions on your own.
Drowning in Expenses?
Maybe youre scrambling after your car broke down.
Or you got a medical bill you werent expecting.
Or inflation has finally pushed your budget over the edge.
You dont need to go it alone.
When money is tight,these resourcescan help you manage unexpected expenses without stress.
Most 401(k) plans have four main investment categories.
Stocks
Your companys 401(k) may allow you to invest in stocks.
If this option is available, youll likely be able to purchase only company stock.
Individual stocks may be an option if your plan has a broker.
What if I Cant Get a 401(k)?
What is a 401(k) alternative if youre not eligible for one?
The most common way is via an IRA.
An IRA limits how much it’s possible for you to save per year.
For 2025, the limit is $7,000, and for people aged 50 or older is $8,000.
Remember, with a Roth, withdrawals are tax free.
Is a 401(k) a Good Idea?
Thats easy: Yes.
A 401(k) is an ideal first step to saving for retirement.
Your retired self will be endlessly grateful.
You brew coffee at home, you dont walk into Target and you refuse to order avocado toast.
(Can you sense my millennial sarcasm there?)
