ShmoopTube

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

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

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

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

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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]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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