RCWS 006 - What is a 401(k) Plan?

A 401(k) plan is a retirement savings plan that is sponsored by an employer. It has grown quite popular in the United States, with over 100 million participants (Source: U.S. Department of Labor).

A 401(k) plan offers significant tax benefits while helping you plan for the future. You contribute to the plan via payroll deduction, which can make it easier for you to save for retirement. One important feature of a 401(k) plan is your ability to make pre-tax contributions to the plan. Pre-tax means that your contributions are deducted from your pay and transferred to the 401(k)plan before federal (and most state) income taxes are calculated. This reduces your current taxable income — you don't pay income taxes on the amount you contribute, or any investment gains on your contributions, until you receive payments from the plan.