What is a 401(k) plan?
The Bankrate.com financial term of the day is: "401(k) plan."
A 401(k) plan has a somewhat funny name but a decidedly serious purpose: to allow workers to build up savings for retirement, typically with some help from the boss. Employees put aside a percentage of their pay to be invested; their employers may partially match the amount put in and may kick in some profit-sharing. Taxes on the income directed into the plan and on the investment returns aren't owed until the money is withdrawn. Withdrawals before age 59 ½ trigger a penalty. Oh, and the funny name? It comes from the section of the federal tax code that authorized these plans.
Participating in your 401(k) plan at work is a good way to start saving for retirement.
To explore your retirement saving options, visit the retirement section at Bankrate.com.
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Follow these tips to choose from the many different funds to invest in for your 401(k).
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