What is the primary purpose of a 401(k) plan?

The primary purpose of a 401(k) plan is to provide retirement income. This retirement savings plan allows employees to save a portion of their paycheck before taxes are taken out, which can grow through investment options offered by the plan. Funds in a 401(k) are intended to be used during retirement, making it a critical tool for building a financial foundation for one’s post-working years.

The focus on retirement income is significant, as many individuals rely on these funds to support their lifestyle once they stop working. Contributions often come with employer matching, adding even more value to the plan and encouraging employees to save more for retirement.

While there are various financial instruments and savings plans available for other purposes, such as medical expenses, real estate investment, or funding children’s education, none serve the specific function of planning for retirement income in the same way that a 401(k) does.