There are several types of 401(k) plans to fit different needs. Here’s a quick overview:
Traditional 401(k)
Contributions are made with pre-tax dollars, reducing your taxable income. Taxes are paid on withdrawals during retirement. Many employers offer matching contributions, adding to your savings.
Roth 401(k)
Contributions are made with after-tax dollars, so you don’t get an upfront tax break. However, withdrawals during retirement are tax-free, making it a good option if you expect to be in a higher tax bracket later.
Solo 401(k)
Designed for self-employed individuals or small business owners with no employees. It offers high contribution limits and allows contributions as both employer and employee, maximizing savings potential.
SIMPLE 401(k)
The SIMPLE (Savings Incentive Match Plan for Employees) 401(k) is designed for small businesses with 100 or fewer employees. It combines features of a traditional 401(k) with the simplicity of an IRA, making it easier for small businesses to offer a retirement plan. Employers are required to make either matching contributions or non-elective contributions to employee accounts, encouraging participation.