I dont understand 401K match - please help

[Like2Plan]

you are correct, that is what i meant.






I know the advantage of a Roth IRA is that the money is taxed today but grows tax free until I cash out after i retire.
But would you please explain to me how a 401k works as it relates to taxes? Is this money, not taxed, that grows inside the 401k and is only taxed after I cash out? or is that a regular IRA? I am a little confused so any info would be a great help, thank you!

There are actually a couple of types of 401Ks that you can invest in (depending on what you company has set up). There is the traditional 401k--your contributions and earnings grow tax deferred until you take the money out at retirement. Contributions will lower your taxable income for the year you make the contribution.

Some companies now also offer a Roth type 401k. You don't receive any tax break when the contributions are made. But, when you retire and pull the money out, you don't pay anymore taxes-- you don't pay taxes on the earnings ever (if you pull the money out according to the rules). This could work very well for you if your tax rate is already pretty low. (There are so many variables to this, though, only your CPA who knows your tax situation would really be able to advise you on which is best).

Now, one more wrinkle-- if you have a Roth 401k set up and receive a company match--all the matching funds will be treated just like the old traditional 401K. The match gets taxed when you pull it out at retirement--and it is a percentage of your overall total. So, if you only ever made contributions to a Roth 401K you could end up having some of the money being taxable (the match plus the earnings attributed to the match) when you pull it out at retirement.

[FirstTimer90]

You have it right. The money goes in untaxed, grows untaxed, and is taxed as you take it out.

so if i use my company's 401k program, and then quit or get fired, I can take that 401k and turn it into an IRA of my own? Which means I will change from their options to something I choose, with much lower fees, and I can keep that money until i retire, investing as I choose, without any more contact with the old company?! do i have that correct? or must I stay in their 401k program even after I leave.....or is there a penalty if i switch out to do something in my own IRA (not roth though, i realize that)?

[Petunia 100]

so if i use my company's 401k program, and then quit or get fired, I can take that 401k and turn it into an IRA of my own? Which means I will change from their options to something I choose, with much lower fees, and I can keep that money until i retire, investing as I choose, without any more contact with the old company?! do i have that correct? or must I stay in their 401k program even after I leave.....or is there a penalty if i switch out to do something in my own IRA (not roth though, i realize that)?

Yes, you have that correct too. Once you are separated from your employer, you can roll your existing 401k to an IRA with the custodian of your choice. There is no penalty. If you choose to roll to a Roth, you will pay tax, but no penalty.

See, you've got this all figured out.

[FirstTimer90]

See, you've got this all figured out.

Thanks to your help and others on here, I am starting to learn. thank you