What Is 401(k)?
An employer-sponsored retirement savings plan with pre-tax contributions and potential employer match.
The Full Definition
A 401(k) is a retirement savings plan offered by employers that lets you contribute pre-tax income directly from your paycheck. In 2026, you can contribute up to $23,500 per year ($31,000 if 50+). Many employers match a portion of contributions — this is effectively free money and should always be captured before investing anywhere else. Like a Traditional IRA, you pay taxes when you withdraw in retirement.
Real-World Example
If your employer matches 50% of contributions up to 6% of your salary, and you earn $60,000, contributing 6% ($3,600) earns you an additional $1,800 from your employer — an instant 50% return before the market does anything.