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What is a 401k? All you need to know about managing your retirement plan
Where to reallocate your 401k money
Shana Sissel on 401K, investing
For decades, one of the safest retirement planning options offered by companies in the U.S. is a 401(k).
A 401(k) is a personal savings account sponsored by employers in various mutual funds. Periodically, money is withdrawn automatically from an employee's paycheck and invested into funds approved by the employee. Typically, an employer will match part or all of the employee's contribution, depending on the individual's plan. These plans are usually given to full-time workers and give employees a tax break for the money they contribute.
Many Americans use their 401(k) to help plan their retirement and live out their golden years in comfort. As of March 2022, 401(k) plans held approximately $7.3 trillion in assets. In 2022, the maximum contribution to a 401(K) for individuals is $20,500 or $27,000 if the employee is over the age of 50. However, the maximum contributions for both an employer and an employee cannot exceed $61,000.
What are the different types of 401ks?
There are two different 401(k) options that each have distinct advantages for the employee. A contribution to Roth 401(K) does not affect an individual's income tax, while a traditional 401(k) allows the employee to deduct contributions from their taxable income. For a conventional plan, the money earned by the employee has no taxes due until the money is withdrawn.