401k

401k plan is a type of employer-sponsored defined contribution retirement plan under section 401(k) of the Internal Revenue Code (26 U.S.C. § 401(k)).  It allows a worker to save for retirement while deferring income taxes on the money they saved (contributions) and earnings until withdrawal.

In general, the employee sets up the 401(k) account and have part of his paycheck paid directly into his or her account pre-taxed.  The employee can invest the saved money in various mutual funds offered by the plan.  The exact investment options available depends on the employer and the plan administrator.

Some employer also offers company matching contribution. The typical match is 50 cents for each dollar the employee contributes, up to 6% of the employee’s salary.