Since their introduction in the late 1970s and early ’80s, 401(k) plans have become the dominant way of saving for retirement in the United States. Today, about 60 million American workers participate in one. The plans have also evolved to include a number of different types.
Here is a basic guide to the major types of 401(k) plans.
There are several types of 401(k) plans for different kinds of employers.Traditional and Roth 401(k)s may be most common at large employers.Smaller employers may favor SIMPLE (Savings Incentive Match PLan for Employees) and safe harbor 401(k) plans, which can be less complex and costly to administer.Solo entrepreneurs can also set up a 401(k) just for themselves.
5 Types of 401(k)s and How They Work
All 401(k)s are defined contribution plans, funded by employee (and sometimes employer) contributions. Traditional pensions, by contrast, are…