ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A 401(k) is a retirement savings and investing plan that employers offer. A 401(k) plan gives employees a tax break on money they contribute. Contributions are automatically withdrawn from employee paychecks and invested in funds of the employee’s choosing (from a list of available offerings).

Detailed explanation-2: -A traditional 401(k) plan allows eligible employees (i.e., employees eligible to participate in the plan) to make pre-tax elective deferrals through payroll deductions.

Detailed explanation-3: -401(k) plans are one of the most popular employer-sponsored plan types because of their low cost, ease of setup, and overall flexibility. Employers that offer 401(k)s to their employees may qualify for tax incentives, and employers have some flexibility in setting matching options for their employees.

Detailed explanation-4: -An after-tax 401(k) allows savers to put after-tax money into a 401(k) account, and that money can grow on a tax-deferred basis until retirement. When it comes time to take a distribution, contributions can be withdrawn tax-free (since tax has already been paid on them).