---
title: Why Do I Have a 401(k)?
description: Here's why companies match 401(k) contributions instead of just paying their employees more.
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published: '2016-06-01T21:51:28.000Z'
modified: '2024-04-16T10:41:20.000Z'
section: Retirement
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![Taylor Tepper Dumb Money](https://img.money.com/2016/06/160531_em_taylor-tepper_grab.png)

Why do I have a [401(k)](https://money.com/retirement-401k-vanguard-balance/?xid=homepage)? Why doesn't my employer just pay me the extra money instead of matching my 401(k) contributions?

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. That money is then invested, usually through a combination of [stocks and bonds](https://money.com/money-50-best-mutual-funds-etfs-2016/), and accumulates without your having to pay taxes on gains or income over the years. You only [pay taxes](https://www.irs.gov/retirement-plans/401k-plans) when you start taking out the money later in life.

Some companies match a portion of your contributions, effectively boosting your retirement fund with free money.

-   Calculator: [Compare a Roth 401(k) to a Traditional 401(K)](http://test1.calcxml.com/calculators/embedCalcLoader?skn=570&calc=ret10)

So why do companies do this? Why don’t they just raise salaries instead?

Well, one important reason is that they get a tax break on contributions they make. They also do it to be competitive....if all the other companies in an industry match employee 401(k) contributions, Company x will look bad if it doesn’t.

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