What is a 401(k) plan?

A 401 (k) plan is a company-sponsored retirement account in which employees can contribute a percentage of their income. Employers often offer to match at least some of these contributions. There are two basic types of 401 (k)s—traditional and Roth—which differ primarily in how they're taxed.

What is a 401(k) & how does it work?

Named for the tax code section that created it, a 401 (k) is an employer-sponsored retirement savings plan with special tax benefits. (The exact tax advantages depend on which kind of 401 (k) contributions you make—more on that later.) Employers typically offer 401 (k)s as part of a benefits package to attract and retain workers.

What is a defined contribution 401(k)?

Defined contribution plans, most of which are 401 (k)s, are an alternative to the traditional pension, known as a defined benefit plan. With a pension, the employer is committed to providing a specific amount of money to the employee for life during retirement.