Skip to main content
Created: June 13, 2022
Modified: January 15, 2025

Episode 70: Why Are 401(k)s Important?

Have your question answered on the Money Wisdom Question Series!

Today’s question is in regard to 401(k)s. Specifically, why are 104(k)s important? They’re important for two big reasons.

Saving for Retirement

Number one, 401(k)’s are important as a mechanism for someone to save and build up a nest egg that they can use when they retire and replace their paycheck. It used to be that you would work for an employer, maybe for your whole career. You retire, and they would provide a pension for you. For many people, pensions and Social Security are really the core of their retirement income. Now, pensions are few and far between, so it’s more incumbent upon people along the way while they’re working to be saving for retirement and build up a nest egg for themselves. Then, in addition to social security, they can replace that paycheck and have income out of that in retirement.

Tax Deferred Growth

The second reason why 401(k)s are important are for tax purposes. Generally, when someone puts money into a 401(k), they’re deferring taxes. Meaning, they’re not paying federal or state taxes on the income that they’ve deferred into the plan and they defer those taxes until later on down the road. They also get tax deferred growth of that money. You might be investing in various mutual funds, stocks, things of that nature, inside of your 401(k) or even IRA. Along the way, maybe those investments produce returns, grow and produce dividends and things like that, but you’re not taxed on that until you ultimately start taking money out of the 401(k) or IRA.

401(k) Contributions

There are other ways to contribute to a 401(k), on a Roth or an after tax basis, which is going to be a little bit different. That’s a topic for another one of these questions later on down the road. Again, there are two big reasons 401(k)s are important: one, as a mechanism to build up retirement funds to use down the road, and two, for immediate tax benefits.

Download Now

The Ultimate 401(k) Guide

Learn the 5 decisions you need to make regarding your 401(k) in this book by Eric Hogarth, CFP®. He’ll help guide you through the many options you have with your 401(k) and to provide the clarity you need to help you make the important decisions that will provide the foundation for you and your family’s financial future.

Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.

Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.

Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.
The guarantees provided by any type of insurance contract are based on the claims-paying ability of the insurance company.

Resources by Topic

The Ultimate 401(k) Guide


Subscribe to Our YouTube Channel

Share

Related Resources

Can I Get ‘Out’ of a Fixed-Rate Vehicle?

When you lock into a fixed-rate vehicle like a CD, fixed annuity, or fixed-indexed annuity, you’re committed to a specific interest rate for a set period. But what happens when after a few years, ra…

Are My Social Security Benefits Taxable?

If your total combined income exceeds certain thresholds, up to 85% of your Social Security benefits may be taxable. Understanding how Social Security is taxed can help you make informed decisions a…

What is the Social Security Fairness Act?

You may have heard about the Social Security Fairness Act, which was signed into law on January 5, 2025. But what is it and who does it help? In this week’s Money Wisdom Question Series, Ian Ferg…

Finding Your Way on Taxes

Taxes can be confusing on any given day, but in retirement, they require even more attention and understanding. In fact, taxes are at the core of nine out of every ten conversations we have with the…

How Can I Transition My Business Value into Money I Can Use?

Today’s question is a crucial topic for many of our clients who are business owners or have significant assets tied up in a business: How can I convert the value of my business into income for my re…

How Will My Retirement Account Withdrawals Affect My Taxes?

Retirement income planning requires thoughtful decision-making, especially when it comes to minimizing the amount you’ll pay in taxes. In this week’s Money Wisdom Question Series, join Jake Doser…

How to Prepare for Taxes in Retirement

No matter how well you’ve saved for retirement, taxes are an unavoidable part of the process. The good news is that with the proper tax planning, you can minimize this burden and keep more of what y…

What Are Some Unexpected Retirement Expenses to Look Out For?

Today’s question is one we help our clients navigate all the time: What expenses might I be responsible for as I enter retirement? Nicholas J. Colantuono, CFP® joins this week’s Money Wisdom Ques…

How Can I Generate Low-Tax or Tax-Free Retirement Income?

Today’s question is: What steps can I take to generate low-tax or tax-free income in retirement? First and foremost, it’s essential to have a tax plan – one that fits within the context of your o…

Preparing for Retirement? Have a Plan for Taxes

Effective tax planning requires a proactive approach for today’s pre-retirees, as neglecting this crucial step can result in a significant tax bill later on. To help minimize your overall tax burden…
    Back to top
    Our Locations
    Johnson Brunetti
    Welcome to Our New Website!
    Everything was designed with you in mind, making our retirement planning resources more easily accessible to you.
    Check out your new resource center, where everything can be organized by article type or topic
    Are you ready to speak with a financial advisor?
    Skip to content