Retirement Accounts
Which one is your glass slipper?
If retirement planning has ever felt overwhelming, you’re not alone. Between the acronyms, rules, and “expert” opinions flying around online, it’s easy to feel like you’ve stepped into the middle of a very long ride, without a clear sense of where it’s heading.
That’s why we’re starting a simple, straightforward series to break down common retirement accounts one at a time. No hype. No jargon. Just clear explanations to help you understand your options and make informed decisions.
First stop: the 401(k).
What is a 401(K):
A 401(k) plan is a traditional retirement plan provided by your employer. Money goes into the account via some combination of your contributions and your employer’s contributions. This money is intended to be withdrawn when you retire (or after age 59 ½) for living expenses, possible emergencies, and your Disney trips!
In a Traditional 401(k), your contributions may be tax-deductible when you put the money in (meaning you’ll pay less in taxes now), but you’ll pay taxes on withdrawals when you take it out (meaning you’ll pay more in taxes later).
Some companies also have a Roth option inside their 401(k) plan. This is the tax opposite of a Traditional 401(k): you get no tax deduction on your contributions today, but you will never pay tax on that money.
Potential Pros:
Automatic Contributions - the money comes directly out of your paycheck, so you never see it.
Employer match - many employers will also put money in your 401(k) for you
Higher contribution limits than other retirement accounts
No income limits
Tax advantages for both Roth and Traditional 401(k) plans
Potential Cons:
Limited investment options - most companies only offer 15-30 options to choose from
Withdrawal limitations - some companies only allow withdrawals X times per year
Limited advice - many plan advisors are only allowed to give advice on the plan itself
Matching rules - some companies choose to only match Traditional contributions (not Roth)
A Few Helpful Notes
You might have a 403(b) or 457 instead of a 401(k)—they work similarly
Contribution limits increase once you reach certain age thresholds
Having a 401(k) can affect your ability to contribute to an IRA
Retirement planning has many moving parts—taxes, timing, income, and goals all matter
A 401(k) can be a powerful starting point, but it’s only one piece of the larger plan.
Understanding how it works (and how it fits with your other accounts) can help you move forward with confidence instead of guesswork. In the next post, we’ll continue the journey by breaking down another common retirement account, so you can keep building a plan that actually works for your life.