Quick Definition

A 401(k) plan is a tax-advantaged retirement savings account offered by many employers in the United States, allowing employees to save and invest a portion of their paycheck before taxes are taken out.

Examples

• 1An employee opts to contribute 10% of their monthly salary to their 401(k), reducing their taxable income and building retirement savings.
• 2A company offers a 50% match on the first 6% of salary an employee contributes to their 401(k), effectively giving free money to the employee's retirement fund.
• 3Upon changing jobs, an individual decides to roll over their 401(k) balance from their previous employer’s plan to their new employer’s plan to keep their retirement savings consolidated and potentially reduce fees.
• 4An employee nearing retirement age decides to increase their 401(k) contributions to maximize their savings before they stop working.

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