If your employer offers retirement options, one of those options is likely a 401k. If you have never had this option before, you may wonder what exactly a 401k is and how useful it will be to you in the future. The video posted below can teach you everything you need to know about the basics of how 401ks work and what to expect from them.
In the simplest terms, a 401k is an employer-sponsored retirement account. The money deposited into the account by you (the employee) and your employer is untaxed, so it is taken from your gross income before your taxes are removed. This is important because it helps you save money on your taxes while still allowing you to save for your future. The exception to this is the Roth 401k. In a Roth 401k, you contribute to your account from your net income after taxes, but in exchange, you won’t have to pay taxes when you withdraw money from your 401k during your retirement.
The money within a 401k account is considered an investment. It doesn’t just sit there. Instead, it is invested. If it is invested well in stable investments that have expected long-term growth potential, it should grow considerably as long as you don’t take money out of the account until you are retired.