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# Dumb Money: Why Do Companies Have 401(k)s?

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<!-- video src="https://cdn.jwplayer.com/manifests/vrqRyDV0.m3u8" -->
## Video: Dumb Money: Why Do Companies Have 401(k)s?

[Watch (HLS stream): Dumb Money: Why Do Companies Have 401(k)s?](https://cdn.jwplayer.com/manifests/vrqRyDV0.m3u8) (1:19)

![Dumb Money: Why Do Companies Have 401(k)s?](https://cdn.jwplayer.com/v2/media/vrqRyDV0/poster.jpg?width=720)

_Published 2016-06-01. In this episode of Dumb Money, Taylor Tepper explains why employers give you a 401(k) instead of just paying you a higher salary._


---

Jul 27, 2023 8:11 PM UTC

---

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---


## Transcript

Today on Dumb Money. Why don't companies just pay me the extra money instead of matching my 401k contributions. I'm here to answer the money questions that you think are too silly stupid or scary to ask. I'm Taylor Tepper and this is Dumb Money. Money. Before I get into this, let's back up. A lot of employers offer a 401 ( k ) plan, where you put a fraction of your paycheck into a retirement account without having to pay any taxes on that contribution at that time. And accumulates without your having to pay taxes on gains or income over the years. You only pay taxes when you start taking out that money out later in life.

Some companies match a portion of your contributions, effectively boosting your retirement fund with free money. This is a big deal for a lot of people. One Fidelity survey from a couple of years ago found that almost half of the people they asked would take a smaller paycheck in exchange for an employer contribution into their 401K. So why do companies do this? Why don't they just raise salaries instead? Well, one important reason is it they get a tax break on the contributions they make. They also do it to be competitive. If all of the other companies in an industry match point K contributions, Company X will look bad if it doesn't.

No matter the reasoning your employer has for giving you a 401 ( k ) and a match, you should take advantage of it. It's a great deal. [ BLANK_AUDIO ]

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