401k Explained in 60 Seconds. In this video I will explained the 401k retirement plan in seconds! Add me on IG: Naam.Wynn If that was too fast read this:
A 401k is a company-sponsored retirement plan that employees can contribute to.
The great thing about this plan is that many employers also make matching contributions.So if your company offers a 5% match and you put in 5%, you will have a total of 10% of your income into your 401k.
There are usually two types of 401k’s, a Traditional and a Roth.
The main difference is how they are taxed.
The traditional 401k is tax deferred. Which means you will be paying your taxes when you withdraw your money when you retire. This is great because you pay no taxes now and pay them later. This allows for your money to grow much faster. So in theory, you should be in a lower tax bracket in the future. Just remember this is just theory, there's no way to predict how taxes will be once you retire.
Now let's talk about the Roth 401k. What Roth means is that it's after tax money. You put money in that is taxed now and this money then grows tax free and you won't have to pay taxes on distributions.
For both plans to avoid penalties, you must be over the age of 59 and a half to withdraw from this account. So avoid withdrawing earlier than this age.
In 2019, you can put in a maximum of $19,000 of your own income.
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