What is the primary purpose of a 401(k) plan?

The primary purpose of a 401(k) plan is to offer tax advantages for retirement savings. These plans are designed to help employees save for retirement while enjoying certain tax benefits, such as deferring taxes on contributions until they are withdrawn, typically during retirement when the individual may be in a lower tax bracket.

Contributions made to a 401(k) reduce an individual's taxable income for the year, allowing for greater savings potential. Additionally, many employers offer matching contributions, which can further enhance the overall growth of savings. By providing these tax incentives, the plan encourages individuals to prioritize long-term financial planning and retirement savings over short-term financial needs.

The other options reflect different financial needs or objectives that are not the main focus of a 401(k). Saving for short-term expenses, managing everyday transactions, and replacing government benefits are not the core intentions behind the establishment of 401(k) plans.