How does 401k Work?

A 401K is a retirement savings and investment account. You first set it up like you would payroll savings, by filling out the form to open the account and say how much you want taken out of your paycheck for the account. Usually the employee will also contribute an amount that will vary based on the terms of your employment and the account. The money is invested how you request – generally this means you pick the type of funds such as ‘money market’ or ‘stock funds’. Since you are not taking the money now, you do not pay any taxes now. It is a sweet deal. The down side is you do not get to use your money until you retire. If you take it out early not only do you have to pay taxes, but there are also big fees and penalties. The penalty to the IRS for early withdrawal is at least 10%. To find more information click here: