Why 401(k)? How It Started and Why It Still Matters

Every year, on the Friday after Labor Day, we celebrate National 401(k) Day—a timely reminder to check in on your retirement savings. But have you ever wondered how the 401(k) came to be and why it has become one of the most popular retirement savings tools in America?

It is estimated that 79% of Americans work for a company that offers a 401(k) plan; however, only 41% take advantage of the benefit.

A Quick History of the 401(k)

The 401(k) wasn’t originally created with retirement in mind. In 1978, Congress passed a tax code provision—Section 401(k)—that allowed employees to defer a portion of their income into a savings plan without being taxed right away. A few years later, forward-thinking employers began using this provision as a way to help employees save for retirement, especially as traditional pensions started to fade.

By the 1980s, the 401(k) was gaining traction, and today it has become the backbone of retirement savings for millions of Americans.

Why 401(k)s Are a Smart Choice

There are several reasons the 401(k) remains one of the most effective ways to prepare for retirement:

• Tax Advantages – Contributions are made pre-tax (or post-tax with a Roth 401(k)), meaning your money can grow tax-deferred until withdrawal.

• Employer Matching – Many employers offer a “match,” essentially free money added to your account when you contribute.

• Automatic Saving – Contributions are deducted directly from your paycheck, making saving consistent and less tempting to skip.

• Long-Term Growth – By investing in stocks, bonds, and funds within your 401(k), your savings have the potential to grow significantly over time thanks to compounding interest.
  

Why National 401(k) Day Matters

Even with the widespread availability of 401(k) plans, many employees either don’t contribute enough or don’t contribute at all. National 401(k) Day is the perfect opportunity to ask yourself a few key questions:

• Am I contributing enough to take full advantage of my employer’s match?

• Should I consider increasing my contribution rate this year?

• Is my investment mix aligned with my long-term goals and risk tolerance?

• If I don’t have access to a 401(k), am I exploring alternatives like IRAs?
  

The Bottom Line

A 401(k) isn’t just a financial tool—it’s a way to create options, freedom, and peace of mind for your future self.

So, this National 401(k) Day, take a few minutes to check in on your retirement savings strategy. Can you optimize it even just a little more? Small changes today can make a big difference tomorrow.