So a 401(k) is a retirement fund available through an employer. The employer makes your contributions for you, and may offer to match some of your additional contributions. But there are a number of different kinds of 401(k) plan.
Traditional 401(k)
The traditional 401(k) takes advantage of a loophole in the law. It allows people to delay receiving part of their income, and therefore postpone some of their tax liability.
Instead of paying income tax on the part of their income that goes into their retirement fund when they earn that income, they don’t pay tax on it until they receive it at retirement. By that time, they’re likely to have dropped down income brackets so they’ll pay less to the government and keep more for themselves.
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