I know that it is a retirement account, so why cant someone put like $10,000 in at once if they have the cash? Also what happens if you do overpay, why is it even possible to overpay in the first place?
In: Economics
The main reason to get a 401k is that you get to delay your taxes until you retire. Instead of paying income tax you can put your cash in a 401k where you get to earn interest on that money. Of course you pay taxes when you withdraw the money but now you have a lot of interest from this which increases the amount of money you get.
For the governments point of view a 401k therefore loses them money as they don’t get to collect tax on it. This is why they have a contribution limit on it. They don’t want people to put all their income into a 401k as they would not be able to collect tax on it.
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