401(k) Plan

Retire with dignity. Don't want to rely on spam sandwiches and off-brand prune juice in your old age? Retirement savings are pretty much a must. The government, for all their stupidity, actually realizes this fact, and allows for savings beyond the very flimsy Social Security system, in the form of a 401k retirement system.

The Roth 401k was created back in 1978. The 401k is a "defined contribution plan," meaning that the money put in by the employer and worker are defined. It is not a "defined benefit plan," where your boss would be on the hook for investment return minimums. That is, if you worked for the government and had their version of a 401k, you would qualify for a minimum stock market return, whether the market did well or poorly. The taxpayers would make up the difference to whatever minimum your union had negotiated for you. Lucky you.

A lot of people choose a 401k because most employers will match contributions. For every buck you put in, your employer may give you another buck—until you retire. It's like a twofer on your investing dollar before you even start investing the dough, and it's probably the closest you're going to get to free money from your boss. The key idea behind a 401k plan, in whatever flavor you invest, is that the investment, in whatever amount it ends up being when you retire and begin withdrawing cash from it at the mandatory 70-1/2 distribution age, is that the money withdrawn at that point is taxable as ordinary income. Why all the bother to defer your money if you're going to be taxed on it anyway? Because most people pay a much higher marginal tax rate in the glory days of their 58-hour-a-week work careers, and pay a much lower percentage rate when they need less money in their old age, when instead of worrying about paying their kids' college tuition, their dreams revolve mostly around new dentures.