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401K

Definition

A 401K is a retirement plan offered by most companies to help you save and invest for the future.

Why It's Important

I hope that everyone reading this is contributing to their 401K at work if they have one available (especially if the company matches).  There are two types of 401Ks, Roth and Traditional.  Roth 401Ks allow you to contribute funds post tax but, when you withdraw, money is tax-free.  A traditional 401K allows you to contribute money pre-tax but when you withdraw all funds are taxed.  

So, here is how to pick which one you should invest in.  If you are early in your career and in a low tax bracket, you should pick a Roth.  Why?  Because the money is taxed at the lower rate instead of being taxed higher later when you make more money.  If you are seemingly at the height of your earning years, you should contribute to a traditional because the money is not being taxed as it's going in, it is going to be taxed as it...

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