What is the basic structure of a 401k?

A 401k is a qualified retirement plan established by employers for the financial benefit of their employees. Funds are traditionally deposited by the employees on a pre-tax basis, meaning the individual contributions are made with “gross” or pre-tax dollars which reduces one’s adjusted gross income for income tax purposes. Funds within the account grow on a tax deferred basis, allowing them to grow more quickly than if they were in a taxable investment account.  In other words, all interest income, dividend income, and capital gains within the account are tax deferred.  Upon withdrawal after the age of 59 ½, the participant will pay income taxes for any funds withdrawn.

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