Mint Money Knowledge Center: What is a 401K?

What is a 401K
A 401(k) is an employer-sponsored retirement savings plan. These retirement plans help you save and invest a portion of your paycheck before the taxes are taken out. Individuals with 401(k) accounts do not pay taxes on the money until they withdraw it from the account. With this retirement savings plan, the individual has control over how the money is invested, with most plans offering mutual funds that are made up of stocks, bonds, and money market investments.

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How much should you contribute to your 401(k)? Most plans offer matching funds, so it is important to take advantage of the opportunity to receive free retirement money. Though many people decide to contribute as much as they can, you want to make sure that you contribute at least enough to get the full matching amount from your employer.

Though a 401(k) does help you save for retirement, and you can't beat the matching funds, there are some restrictions. For the most part, an individual cannot access the employer's contributions immediately as there is a set amount of time you must work for the company before tapping into these payments. There are also other rules that dictate when you can withdraw money, as well as penalties for withdrawing before retirement.

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