401(k) Plan

[fɔ:r ˈhʌndrəd wʌn keɪ plæn]

This is a specific retirement contribution account, that offers employees an opportunity to set aside a portion of their salary in a tax advantaged way; this means that the money which is earned with a 401(k) plan, will not be taxed until the employ goes into retirement.

There are several types of 401(k) plans, including the two main kinds: the traditional 401(k) and the Roth 401(k). The traditional (or regular) 401(k) offers upfront tax break on your savings. Contributions to a Roth 401(k) are made with after-tax dollars, so you don’t get to deduct the money from that year’s taxes.

Other advantages also include the following:

  • Pretax contributions make saving a little less painful
  • Contributions can significantly lower  income taxes
  • A Roth 401(k) gets the taxes out of the way, right away


Part of speech:
Retirement Savings Plan
Retirement Savings Account
Retirement Account
Use in a sentence:
When you join the 401(k) plan, you are restricted in terms of investment choices.
401(k) Plans