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Why are 401(k)s so popular as a work retirement plan?

Published: Mar. 30, 2021 at 8:26 AM EDT
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LEXINGTON, Ky. (WKYT) - Approximately 60 million Americans participate in a 401(k) plan. This form of retirement plan has not always been the go-to choice for saving. Fiduciary financial planner Dustin Stanley of Strategic Wealth Designers joined the newscast to discuss why 401(k)s are now so popular. Pensions used to be the retirement standard.

“Many of our parents or grandparents had pensions,” Stanley says. “Pensions were the ‘alternative’ to 401(k)s. Now people primarily rely on Social Security, independent savings accounts, and 401(k)s for their retirement.”

401(k)s became popular in the 1980s. In 1978 Congress passed a tax code that provided employees an option for tax-advantaged saving through deferring compensation of salaries or bonuses. For the last 30 years, 401(k)s have increased in popularity.

“401(k)s are defined-contribution plans,” Stanley says. “This means the employer no longer takes on all of the risk associated with the savings. Pensions required that employers take on all of the risks and plan for how long the employee would live.”

Participation in 401(k) programs is one of the most common retirement plans for US employees. To see additional stories surrounding business and economic news for the Lexington area, visit https://www.WKYT.com/MoneyMatters/ and if you have a question for Dustin send an email to info@swdgroup.com.

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