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A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute a portion of their pre-tax paycheck, with investments growing tax-deferred.
In Depth
A 401(k) is a popular retirement savings plan offered by many employers. Money is automatically deducted from your paycheck before taxes, which can lower your current taxable income. Your investments grow over time without being taxed until you withdraw them in retirement. Many employers also offer to match a portion of your contributions, essentially giving you free money for retirement.
Example
Sarah contributes 10% of her salary to her 401(k) each month, and her employer matches 50% of her contributions up to 6% of her salary.