What is a 401(k)?

A 401(k) is a retirement account offered by many employers. You contribute from your paycheque, often before taxes are taken out. Many employers match a portion of what you put in, which is an immediate return.

Section 01

How contributions work

You choose a percentage of your pay to contribute. That amount goes into investments you select inside the plan.

Section 02

Taxes and withdrawals

  • Traditional 401(k): contributions are pre-tax; withdrawals are taxed as income.
  • Roth 401(k): contributions are after-tax; qualified withdrawals are tax-free.
  • Withdrawals before 59½ usually face penalties and taxes.
Section 03

FAQ

Should I contribute if my employer does not match?

A 401(k) is still useful for tax-deferred growth and automatic saving, but compare it to an IRA for fund choices and fees.

What happens when I change jobs?

Key takeaway

You can leave it, roll it to the new employer plan, or roll it to an IRA. Cash-outs usually trigger taxes and penalties.

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What the retirement calculator can estimate

A retirement savings calculator projects how current savings and future contributions might grow under a chosen return assumption. It can also estimate a potential retirement balance or test how long a balance may support planned withdrawals. Because actual investment returns vary, compare several scenarios instead of treating one result as certain. Include workplace accounts such as a 401k, individual accounts, taxable investments, and any pension benefits that apply.

Effective retirement planning also considers inflation, taxes, health expenses, debt, and the timing of Social Security or pension income. Full retirement age is a Social Security term and is not necessarily the age when someone must stop working. An annuity may create a contractual income stream, but fees, guarantees, liquidity restrictions, and insurer claims-paying ability depend on the specific product. Review assumptions regularly as income and expenses change.

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