What is the main benefit of a 401(k) plan?

The main benefit of a 401(k) plan is that it allows tax-advantaged savings for retirement. Contributions made to a traditional 401(k) are typically made on a pre-tax basis, which means that the money is deducted from your taxable income for the year you contribute. This can significantly lower your tax bill in the year of contribution. Additionally, the investment growth within the 401(k) account is tax-deferred, meaning you won’t pay taxes on the investment earnings until you withdraw funds, usually during retirement when you may be in a lower tax bracket.

This tax advantage encourages individuals to save more for retirement, as they can grow their savings without the immediate impact of taxes. When considering the options presented, the other possibilities do not encapsulate the primary purpose and major advantage of a 401(k) plan. Unlimited investment options are limited by the plan provider, a guaranteed fixed income is not typically a feature of standard 401(k) plans, and employees are usually required to make contributions to benefit from the employer match and to fully utilize the plan's advantages.