401(k)
Definition
An employer-sponsored retirement plan where you can invest a portion of your paycheck before taxes are taken out. Your employer might match part of your contribution (free money). The money grows tax-free until you withdraw it in retirement, ideally at a lower tax rate.
Why It Matters
A 401(k) with employer match is one of the easiest ways to build wealth. If your employer matches, you're leaving free money on the table if you don't contribute at least enough to get the full match. Plus, the tax savings are substantial.
Example
You contribute $6,000 to your 401(k) and your employer matches 50% up to 6% of salary. That's an immediate $3,600 match. If you earn 7% annually on $200,000 total after 30 years, you'd have over $1.5 million.