Which advantage does a 401(k) plan provide to employees?

The advantage that a 401(k) plan provides to employees is tax-deferral on contributions until withdrawal. This is a key feature of 401(k) plans that makes them particularly beneficial for retirement savings. When employees contribute to their 401(k), those contributions are made with pre-tax dollars, meaning that they reduce the taxable income of the employee for the year in which the contribution is made. This deferral allows the investments within the 401(k) to grow without being taxed until the employee withdraws the funds, typically during retirement when they may be in a lower tax bracket.

This tax-deferral aspect encourages employees to save for retirement, as it allows their savings to potentially grow more quickly than they would in taxable accounts, where investment gains are subject to taxation each year.

Other options, while they may sound appealing, do not accurately represent the main benefits of a 401(k). The potential for higher income levels during retirement is a desirable outcome but is not a guaranteed feature of the plan itself. Guaranteed payouts are not offered by most 401(k) plans, as they are typically subject to market performance, and lifetime health benefits are not a standard component of 401(k) plans, which primarily focus on retirement savings rather than healthcare.