What advantage does a 401(k) plan offer to employees during retirement?

A 401(k) plan offers significant tax advantages on both contributions and earnings, which is a key benefit for employees during their retirement. Contributions made to a traditional 401(k) are typically made with pre-tax dollars, meaning they reduce the employee's taxable income for the year in which they are made. This provides an immediate tax benefit as employees pay less in income taxes in the years they make contributions. Additionally, the earnings on investments within the 401(k) account grow tax-deferred. Taxes on these earnings are postponed until withdrawal, usually during retirement when many individuals may be in a lower tax bracket.

This combination of pre-tax contributions and tax-deferred growth can enhance an employee's overall retirement savings compared to taxable accounts, making the 401(k) an effective tool for retirement planning. While other options reference potential retirement benefits, they do not encapsulate the primary financial advantage that a 401(k) plan provides to employees during their retirement years.