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What Is a 401k?

Focus Series: 401(k) Is Your Friend

The feeling of getting your first paycheck from your first "real" job is so satisfying that many people never forget it. You probably hadn't received a check that big unless it was for student loans and don't want to part with any of it, especially if it's going somewhere where you're not supposed to touch it for several decades. Hopefully, your employer has presented you with health benefits choices and the option to defer a portion of your salary to a 401(k).

While it's true that contributing to a 401(k) account will slightly reduce your actual paycheck, the money is still yours but it's invested in another account. A 401(k) is a type of account connected to your employer that allows you to save pre-tax dollars for retirement. That means the money is taken out of your paycheck before taxes have been applied. You don't pay taxes on the account until you withdraw money, which can be done without penalty after age 59 1/2.

I'll be introducing a 401(k) Focus series soon, because saving early for retirement is one of the smartest things you can do for your overall financial health. Are there any 401(k) questions or issues that you'd like me to cover?


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