Pre-tax Contribution

Finance a la shmoop... what is a 401k plan? okay say it with me tax deferred savings

that's it it's really not all that complex for the fancy numbers there all [Complex formula scribbles]

right well when you make money at work you get to defer the tax that you'll pay

on your income or earnings to be paid much later in life and you get to invest

that dough and let it ride tax-free until you take it out of your 401k plan [Money coming out of deferred savings piggy bank]

brokerage account and then at that point well you'll pay ordinary income tax on

your gains well the 401k was a part of the tax code

that was put into motion in the 1980s as the government began to painfully

realize that Social Security wasn't all that secure and that a whole generation

of people who had paid money into Social Security wouldn't get anything back so [People protesting outside the white house]

the government opened the door and made it easy or at least easier for the semi

wealthier masses to save money for their retirement and this was a new idea at

the time a whole new concept like a flying car before then it was mama [Man talking and flying car goes by a window]

corporation who managed the pension money for her employees you know that

sucking off the corporate teat and all that stuff well it fostered a sense of

long-term lifetime loyalty to the company and was all just very you know

IBM like a born in pinstriped blue diapers IBM employee with a hard loyal [Baby boy playing with a flashing rattle]

workforce working away there toiling in the IBM salt mines for 35 years

then retiring at 60 and having smoked a lot dying at age 65 and then that was

all she wrote well that was then this is now it's a different era different

financial pressures so companies don't generally offer pensions today and they

don't generally manage them themselves because the cost of buying real talent

like people who consistently beat the stock market in good times and

bad managing that 401k money is astronomically expensive and generally [Boxing gloves punching the stock market]

speaking corporations can't afford to pay those people nine times whatever

the CEO makes so companies generally contribute some amount of money to a

401k and then they leave it up to the employees to figure out how they want to

invest their retirement savings on their own and that's a good thing most of the

time and you know hopefully it's there when they want to go take it out and

they need the money when they're old and decrepit like like I'm getting...