A 401(k) plan is a retirement savings plan with favorable tax features offered through a place of employment. Pre-tax employee wages are invested in mutual funds and similar pooled products to grow over time. To encourage workers to participate, an employer might “match” the employee’s contribution up to a specific dollar or percentage amount.
It’s identified in the 401(k) subsection of the U.S. Internal Revenue Code subsection, hence the name. A 401(k) is a type of defined-contribution plan. The employee and employer contribution amounts are consistent and routine, as opposed to a defined benefit plan (commonly known as a pension), in which the employer is the sole contributor.