In U.S. personal finance, an employer-sponsored retirement account funded from workers’ paychecks before income tax is a 401(k) plan.
The name comes from section 401(k) of the Internal Revenue Code. Congress created the relevant tax rules in 1978, and employers began adopting 401(k) arrangements widely during the 1980s. Employees usually choose investments from a menu offered by the plan.
Traditional 401(k) contributions generally reduce taxable income when contributed, while withdrawals are usually taxed later. A Roth 401(k), when offered, uses after-tax contributions and may allow qualified tax-free withdrawals. A 401(k) is not the same as a 403(b), which commonly serves employees of public schools and certain nonprofit organizations.
Many employers also provide matching contributions. A match can increase retirement savings, but plan rules differ on eligibility, vesting, investment choices, and withdrawal conditions.