Question

What is a good reason to contribute to a 401(k) retirement account?

Answer 1

Answer:

The money in the 401(k) account is not taxed until withdrawn.

Explanation:

A 401 (k) can be defined as a type of compensation (savings) plan that is being sponsored by a business firm or company (employer) to avail its employees the opportunity to contribute into. As a company-sponsored and defined-contribution retirement savings plan, it offers tax advantages to the employees because it reduces their income tax for the particular year while taxing their withdrawals.

A good reason to contribute to a 401 (k) retirement account is that, the money in the 401 (k) account is not taxed until withdrawn. Thus, the money contributed by an employee to a 401 (k) will maintain its tax-deferred status until  he or she withdraws it.

For example, a 401 (k) would be the best retirement savings option for a 50-year old medical doctor whose employer offers a 5% contribution match.