Which retirement plan is designed specifically to provide tax advantages for retirement savings?

A 401(k) plan is specifically designed to offer tax advantages to individuals for building retirement savings. This type of retirement account allows employees to contribute a portion of their wages, with contributions often made before tax deductions. This means that the money going into a 401(k) is not subject to income tax at the time of contribution, which can significantly reduce the employee's taxable income for that year.

In addition to tax-deferred growth, many employers offer matching contributions to a 401(k), which can further enhance the savings potential. Furthermore, the funds within a 401(k) can grow tax-free until they are withdrawn, typically during retirement when individuals may be in a lower tax bracket.

Other types of plans, like pension plans, provide a fixed benefit amount at retirement but are generally employer-funded and do not offer the same level of individual contribution flexibility or tax advantages as a 401(k). Traditional plans can refer to different types of plans that are not as specific and do not necessarily highlight the tax advantages tied directly to individual retirement savings. Life insurance policies primarily focus on providing a death benefit, and while they can have cash value components that may offer some tax advantages, they do not serve the primary role of retirement savings plans like a 401