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What is a 401(k)?

A 401(k) is a type of retirement account. It’s sponsored by an employer, so only those employed by a company can contribute.

The person enrolled in the 401(k) decides how much of their paycheck will go directly into your account through automatic payroll deductions, using pre or post-tax dollars.

A 401(k) has a larger annual contribution limit, up to $18,000 for individuals under the age of 50 and $24,000 for individuals over the age of 50.

People enrolled in a 401(k) are able to contribute to both the 401(k) and an IRA, but must stay under the annual contribution limits for each type of account.

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