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Top 10 must-know rules on 401(k) taxes

Mediafeed Logo By Kate Ashford of Mediafeed | Slide 1 of 28: Employer-sponsored retirement plans like a 401(k) are a common way for workers to save for retirement. In any given year, about half of employees participate in a retirement plan at work, according to the Bureau of Labor Statistics. So it’s important for participants to understand how 401(k) taxes work.With a traditional 401(k) plan, employees can contribute a portion of their salary to an account with a range of investment options, including stocks, bonds, mutual funds and cash.Employers sometimes match part or all of these contributions. For instance, a company might match 50% of an employee’s contribution, up to 6% of the employee’s salary. In 2020 and 2021, participants can contribute up to $19,500 to a 401(k) plan, plus $6,500 if they’re 50 or older.There are two main types of workplace 401(k) plans: a traditional plan and a Roth. Although Roth 401(k)s are a newer product on the market, they’re becoming increasingly popular. The rules on 401(k) taxes depend on which plan an employee participates in. Related:  A guide to tax-efficient investing

Your 401(k) and Taxes

Employer-sponsored retirement plans like a 401(k) are a common way for workers to save for retirement. In any given year, about half of employees participate in a retirement plan at work, according to the Bureau of Labor Statistics. So it’s important for participants to understand how 401(k) taxes work.

With a traditional 401(k) plan, employees can contribute a portion of their salary to an account with a range of investment options, including stocks, bonds, mutual funds and cash.

Employers sometimes match part or all of these contributions. For instance, a company might match 50% of an employee’s contribution, up to 6% of the employee’s salary. In 2020 and 2021, participants can contribute up to $19,500 to a 401(k) plan, plus $6,500 if they’re 50 or older.

There are two main types of workplace 401(k) plans: a traditional plan and a Roth. Although Roth 401(k)s are a newer product on the market, they’re becoming increasingly popular. The rules on 401(k) taxes depend on which plan an employee participates in.

Related:  A guide to tax-efficient investing

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