Review:
Traditional 401(k)
overall review score: 4.5
⭐⭐⭐⭐⭐
score is between 0 and 5
A traditional 401(k) is a retirement savings account sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out.
Key Features
- Employer-sponsored
- Pre-tax contributions
- Tax-deferred growth
- Matching contributions possible
Pros
- Tax advantages: Contributions are made with pre-tax dollars, reducing taxable income.
- Employer match: Some employers offer matching contributions, effectively doubling the employee's savings.
- Investment options: Traditional 401(k)s often offer a range of investment options to help grow retirement savings.
Cons
- Early withdrawal penalties: Withdrawals before age 59.5 may incur taxes and penalties.
- Required minimum distributions: Participants must start taking distributions at age 72, potentially affecting retirement plans.
- Limited contribution limits: Contributions are capped each year, limiting the amount individuals can save.