What is the purpose of retirement accounts like 401(k) and IRA?

Retirement accounts such as 401(k)s and IRAs are specifically designed to encourage individuals to save for their retirement in a way that offers tax advantages. These accounts allow contributions to be made on a pre-tax basis or provide tax-free growth depending on the type of account. For instance, contributions to a traditional 401(k) or traditional IRA are typically made before taxes are deducted, thus reducing taxable income in the years contributions are made. Conversely, Roth IRAs allow for after-tax contributions, leading to tax-free withdrawals in retirement.

The primary goal of these accounts is to build a nest egg that can be relied upon during retirement years when individuals may no longer have a steady income from employment. By offering such tax benefits, retirement accounts incentivize individuals to save more effectively and accumulate significant funds over time, ensuring financial security during retirement. This purpose directly aligns with the overarching goal of promoting long-term wealth and financial well-being.

Other options do not align with the fundamental purpose of these accounts, as they focus on trading frequency, real estate investments, or commodities, which do not reflect the tax-advantaged savings intent of retirement accounts.