What a 401(k) is
A 401(k) is an employer-sponsored retirement plan in the United States. You contribute from your paycheck and the money is invested for retirement. Many employers add a match, which is free money and the first thing most people should capture.
Traditional versus Roth
- Traditional. Contributions reduce taxable income now. You pay tax when you withdraw in retirement.
- Roth. You contribute after-tax money. Qualified withdrawals in retirement are tax-free.
Other retirement accounts, such as IRAs, follow similar ideas with different rules and limits. Limits and rules change, so check current figures with the IRS or a tax professional.
Time horizon changes the plan
If retirement is 30 years away, you can usually accept more stock exposure because you have time to recover from downturns. As the date approaches, many investors shift gradually toward bonds and steadier assets. This is the idea behind target-date funds.
Common mistakes
- Not contributing enough to get the full employer match.
- Cashing out when changing jobs, which can trigger taxes and penalties.
- Panic-selling during a downturn.
- Ignoring fees inside the plan.
How Redtail fits in
Our retirement sector is built for long horizons: diversified, rebalanced and focused on steady compounding. Speak to a tax professional about account types and eligibility for your situation.
Key takeaways
- Always capture your full employer match.
- Traditional saves tax now, Roth saves tax later.
- Shift toward steadier assets as retirement nears.
This lesson is general education and not personal financial, tax or legal advice. Investing involves risk, including loss of principal.