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The ABCs of 401(k)s: Different Types Explained

Welcome back, fellow 401(k) newbies! This is Emma again, the broke (but aspiring not to be) young adult that used to know nothing about 401(k)s. Today’s hot topic: Decoding the 401(k) Alphabet Soup. AKA: did you know there were different types of 401(k)s? I didn’t – until recently. 

So join me as I sip some homemade (instant) coffee, and subtly congratulate myself for avoiding that fifth Starbucks run. Let’s unravel this together, shall we? 

5 Types of 401(k)s

  1. Traditional 401(k): Like an old pair of jeans, the Traditional 401(k) is your reliable stable. Money goes in before taxes, grows tax-free, and you pay taxes when you withdraw it during retirement. Keepin’ it simple. 
  2. Roth 401(k): This one is like ordering dessert first – and, hey, I’m not judging. You pay taxes upfront, and then – voila – you withdraw the money tax-free in retirement. It’s a future sweet treat! 
  3. Safe Harbor 401(k): Here’s the referee of 401(k)s, ensuring everyone gets a fair deal. Employers must contribute a set amount for all employees, even if they don’t contribute. This keeps everyone on an equal retirement playing field.
  4. Simple 401(k): This one’s as chill as a late night Netflix binge. It’s designed for small businesses, is easier to manage, and has tax breaks similar to a Traditional 401(k). No bells and whistles.
  5. Solo 401(k): This is the “independent spirit,” if you will. It’s perfect for the self-employed or small business owners with no employees. Cue the lo-fi playlist. 

But here’s the important part (how it applies to you and me). Our ever-reliable saveday handles both Traditional and Roth 401(k)s, making it easy-peasy for us beginners to join the retirement party.

There’s lots to learn about 401(k)s but they’re always here to make it simple. Now you can sit back, relax, and toast to informed decisions making “future us” proud. 

Any more questions? The saveday blog is a lifesaver for retirement saving tips and 401(k) FAQs.

Next up, we’re diving into why starting young on 401(k)s is the advantage our wallets need. See you there!

Happy saving!