Full Answer
Now, you have the answer to the question “What is a 401 (k)?” A 401 (k) retirement plan is one of the most popular employer-sponsored retirement plans. Under a 401 (k), you’ll contribute a portion of your salary to a retirement account, and your employer may match your contributions in full or by percentage. A third-party financial advisory firm will invest the money for you so you can earn higher interest. In order to withdraw money from your 401 (k) plan, you must have reached age 59 ½ or have met one of several triggering events—otherwise, you’ll have to pay an early withdrawal penalty.
The Roth 401 (k) is increasingly popular, but it’s still not offered by a large number of companies.
The purpose of a 401 (k) retirement plan is to help you save enough money to live a comfortable retirement. If you were able to remove money from your 401 (k) like it were a checking account, then it would be all too easy to use the money for other expenditures and you could significantly hinder the quality of your retirement. For that reason, there are strict rules on how and when you withdraw money from your 401 (k).
The average retirement age is increasing due to longer lifespans and economic necessity. Even when you’ve reached the age of 59 ½, you don’t have to withdraw money from your 401 (k) until you reach age 72. The IRS requires that individuals with a 401 (k) receive minimum distributions at age 72. The only exception is if that employee is still working for the company that’s sponsored their 401 (k).
It’s never too early to start saving for your future. In fact, the earlier you start the easier and more fruitful your retirement can be. There are many different ways to save for retirement, but one of the most popular is the 401 (k) retirement plan. But, what is a 401 (k)?