What Is 401(k)? Meaning & Example
Definition
A 401(k) is a US employer-sponsored retirement account that lets workers invest part of their paycheck with tax advantages. Many employers add matching contributions.
Related terms
An employer match is money your employer adds to your retirement account when you contribute. It is often described as free money because it boosts your savings at no extra cost to you.
IRA (Individual Retirement Account)An IRA is a US retirement account you open yourself that offers tax advantages for long-term saving. Traditional IRAs may offer tax-deductible contributions, with taxes paid on withdrawal.
Tax-Advantaged AccountA tax-advantaged account offers tax benefits such as deductions, tax-deferred growth or tax-free withdrawals. Rules and limits vary by account type and country.
What is 401(k)?
A 401(k) is a US employer-sponsored retirement account that lets workers invest part of their paycheck with tax advantages. Many employers add matching contributions.
Can you give an example of 401(k)?
Contributing 6% of your salary to a 401(k) with a full 6% match effectively doubles that savings.