401K
A 401K is an investment fund usually used to save toward retirement. The majority of companies in the USA have a 401K plan that they offer to their employees as part of the benefites package. When looking for a career with a particular company the 401K plan should really be one of your deciding factors. It is so very important to think of the future and save in a 401K fund to reach out for financial independance by the time you retire.
How Does a 401K Work?
All companies have a different set of rules for their 401K plan, but they all follow some general lines. Most people opt to contribute to their 401K plan monthly by deferring a pecent of or a set dollar amount into the fund directly from their pay check. Doing this is highly reccomended for several reasons. The main one is that the funds are deferred before income tax is applied to it. Therefore you are able to save untaxable dollars that build you interes. It is true that eventually the funds will be taxed, but it is best to use some form of automatic defferral such as this so that you earn interest on those dollars until it is time for you to retire. Many companies will match your contributions to your 401K retirement fund for at least a certain number of years to encourage you to save.
Once you have saved in your 401K and you reach legal retirement age, you have a few options. Many people choose to rollover their 401K into an IRA account.