You can save cash in your 401k also, except at a much faster rate…
Lets see, you earn $1000. For simplicity, lets assume a 25% federal tax bracket. You are left with $750 to put in your cash savings account. The account earns, let’s say, 4% or $30 (annualized). Since it is not a tax deffered account you owe $7.50 in taxes, leaving you $22.50 in earned interest and a total of $772.50
If you would have left the money in the 401k you would have $1000 (pretax contribution). In this example the employer is contributing 25% or $250. You now have $1,250. This account also earns 4%. 4% x $1,250 = $50. The account is tax deffered so I don’t have to pay taxes and I can keep my $50 of interest for a total of $1,300.
