401 (k) Plan Definition

Definition: 401 (k) plan is most common type of retirement savings plans. This plan is offered to employee through his/her employer, that is, your employer sets up a retirement plan for you. With 401 (k) plan, you are allowed to choose between taking compensation in cash or deferring a percentage of it to an account under the plan.

401 (k) plan lets employees save and invest some part of their paycheck before taxes are taken out. You will not pay taxes until you draw the money from the account.