Lesson 1: What the Heck is a 401k, and What’s So Great About It?

A 401k is an investment vehicle, but not like stocks or bonds. Instead, it’s like a box that can hold stocks or bonds. When you decide to invest in a 401k retirement plan, you haven’t really decided what you are going to invest in; you’ve merely decided what kind of box you will use to hold your investments.

Drill Down: What is a mutual fund?

Money flows into that box from a person’s employer; the funds are set aside from the employee’s wage based upon his 401k decisions. In most cases, the employee chooses the investments into which that money will flow, but not every payday-what a bother that would be. But the employee does choose how new money will be invested.

Lesson 1 - Money Flow Diagram

What makes a 401k plan so great? The benefits are numerous. Whether it’s the possibility of employer contributions and tax deferred growth or the ease of automatic savings, the 401k is an excellent retirement option.

Drill Down: More about what's great about a 401k

Even with all of these advantages, employees still frequently pass up the opportunity to begin their own 401k. Why? Often it’s because there are a few key decisions that need to be made, including how much to invest (especially when presented with other alternatives and financial needs), what to do with 401k plans from previous jobs, and how to withdraw money from the plan. But don’t worry. I’m going to make this easy for you and show you how to address all of these questions and others.

Drill Down: The decisions you'll have to make

Your 401k is just a part of your life. You’ll get better results if you coordinate what’s happening inside your 401k with what’s happening outside your 401k. It’s not hard; it just takes a little attention.

Drill Down: Your 401k and the rest of your life

Take the Quiz for Lesson 1

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