What are the tax advantages of a 401(k) plan?
Employees who participate in a 401(k) plan can reduce their current taxable income by making contributions on a pre-tax basis. The plan also reinvests money earned on the investments tax deferred. This tax-deferred compounding gives the employee’s account the potential to grow much faster than it would in a regular taxable account. Any employer contributions and plan administrative expenses are generally tax deductible to the employer.
