A tax-advantaged retirement savings plan sponsored by employers that allows employees to contribute pre-tax earnings.
A 401(k) plan is a retirement savings and investing plan that employers offer. It gives employees a tax break on money they contribute. Contributions are automatically withdrawn from employee paychecks and invested in funds of the employee's choosing from a selection offered by the employer. In many cases, employers match employee contributions up to a certain percentage. There are two basic types: traditional 401(k) and Roth 401(k), with different tax treatments.
If you earn $60,000 annually and contribute 6% ($3,600) to your 401(k), and your employer matches 50% of that contribution, you'd receive an additional $1,800 from your employer, totaling $5,400 in annual retirement savings.