What is a 401(k)?

Your employer sets up a 401(k) retirement plan with an investment company. You, the employee, agree to put part of your salary into a special savings and investment account. Most companies that offer 401(k) plans also match some of the employee contributions. That makes a 401(k) plan a much better vehicle for retirement savings than an individual retirement account. The money you invest isn't counted as income when you complete your annual tax return. Earnings that accumulate in the account are not taxed until you start making withdrawals.