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Finance: What is a 401(k)? 51 Views
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Description:
What is a 401(k)? A 401(k) is a retirement plan that is offered by many employers (government entities, however, use a 403(b) plan). These plans use money contributed by both the company and the employee to invest in their own stock and/or the stock of other companies for the benefit of employee retirement.
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Transcript
- 00:00
Finance a la shmoop... what is a 401k plan? okay say it with me tax deferred savings
- 00:11
that's it it's really not all that complex for the fancy numbers there all [Complex formula scribbles]
- 00:16
right well when you make money at work you get to defer the tax that you'll pay
- 00:21
on your income or earnings to be paid much later in life and you get to invest
- 00:28
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]
Full Transcript
- 00:34
brokerage account and then at that point well you'll pay ordinary income tax on
- 00:38
your gains well the 401k was a part of the tax code
- 00:42
that was put into motion in the 1980s as the government began to painfully
- 00:46
realize that Social Security wasn't all that secure and that a whole generation
- 00:51
of people who had paid money into Social Security wouldn't get anything back so [People protesting outside the white house]
- 00:57
the government opened the door and made it easy or at least easier for the semi
- 01:02
wealthier masses to save money for their retirement and this was a new idea at
- 01:08
the time a whole new concept like a flying car before then it was mama [Man talking and flying car goes by a window]
- 01:11
corporation who managed the pension money for her employees you know that
- 01:16
sucking off the corporate teat and all that stuff well it fostered a sense of
- 01:20
long-term lifetime loyalty to the company and was all just very you know
- 01:26
IBM like a born in pinstriped blue diapers IBM employee with a hard loyal [Baby boy playing with a flashing rattle]
- 01:32
workforce working away there toiling in the IBM salt mines for 35 years
- 01:38
then retiring at 60 and having smoked a lot dying at age 65 and then that was
- 01:43
all she wrote well that was then this is now it's a different era different
- 01:47
financial pressures so companies don't generally offer pensions today and they
- 01:51
don't generally manage them themselves because the cost of buying real talent
- 01:56
like people who consistently beat the stock market in good times and
- 02:00
bad managing that 401k money is astronomically expensive and generally [Boxing gloves punching the stock market]
- 02:05
speaking corporations can't afford to pay those people nine times whatever
- 02:09
the CEO makes so companies generally contribute some amount of money to a
- 02:13
401k and then they leave it up to the employees to figure out how they want to
- 02:18
invest their retirement savings on their own and that's a good thing most of the
- 02:22
time and you know hopefully it's there when they want to go take it out and
- 02:25
they need the money when they're old and decrepit like like I'm getting...
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