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Everything You Need to Know About 401(k)s

Everything You Need to Know About 401(k)s

Kiersten Essenpreis for Money

Corporate pensions have been disappearing in the American workplace for decades now. They have largely been replaced by 401(k)s as the primary type of employer-sponsored pension. These accounts are a critical piece of the retirement planning of some 27 million American workers — so it pays to know a little bit about how they work and what you can do to maximize your returns.

What is a 401(k)?

In contrast to a traditional defined-benefit pension, a 401(k) is a defined-contribution account. Companies like these retirement plans because they cost less, but the defined-contribution structure shifts most of the burden of saving onto the employee — and financial planning pros worry that Americans just aren’t saving enough: According to the Employee Benefit Research Institute, the median 401(k) account balance was just $90,015 at the end of 2018.

Most Americans should be saving more than they are, experts say. “One of the biggest mistakes a person can make when it comes to their 401(k) is simply not saving enough,” says Robert Comfort, president of CUNA Brokerage Services Inc., a division of Madison, Wis.-based CUNA Mutual Group. If you’re not doing so already, take advantage of the tax benefits and employer contributions to maximize your 401(k) nest egg.

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Everything You Need to Know About 401(k)s
These accounts are key to most Americans’ retirement plans.