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401(K)

401(K)

An employer-backed retirement savings plan that offers tax benefits to its members. By enrolling, employees agree to have a portion of their paycheck automatically deposited into an investment account, which may be matched by the employer. Members can choose from a variety of investment options, typically mutual funds. This retirement account comes in two types - traditional and Roth - which vary in tax treatment. Traditional plans allow pre-tax contributions that reduce taxable income, but withdrawals are taxed. On the other hand, Roth plans are funded with after-tax income and do not offer tax deductions in the contribution year, but withdrawals are tax-free. Employers can contribute to both types of programs.

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