Is 401K Money Tax Free? 
401K 's are funded with pretax dollars , which means that the money is taken out of your paycheck before taxes are deducted . The benefit is that it lowers your taxable income for the year but eventually when you retire you will have to pay taxes on that money . Also if you make withdrawals before you reach the age of 59 1/2 , typically you will have to pay a 10 % early withdrawal penalty on top of any taxes that are due . 401K are good but there are other retirement options . 