2 main advantages with a 401K have already been stated:

1. Money going in is deducted from your taxable income. In your later higher-income earning years, this can save a considerable amount on your year-to-year tax obligations.

2. Money coming out is taxed at what is likely to be a lower rate, since you will likely be earning less after retirememnt and thus will be in a lower bracket.

Unmentioned so far is perhaps the best reason:

Your earnings in the 401K are not only compounded, but are tax deferred. Compounded earnings, over the long run, will likely exceed your original nominal contributions, and what you don't pay in taxes on those earnings is free to earn your fund more money, and the cycle repeats over and over. Do that over 30-40 years, and you're talking real money. My 22 yr old daughter has already started.

“The most powerful force in the universe is compound interest”. -Albert Einstein. There is actually a more powerful force: tax-deferred compound interest.

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2002 E320 4-Matic
2008 Subaru Outback
2009 Subaru Forester