What is a 401k Plan?

401k plans are retirement plans that allow employees to save money for their retirement in a way that is different from traditional pension plans. The name of 401k plans comes from the Internal Revenue Code. In section 401k of the Code, a program is outlined by which employees, under the supervision of their employer or other plan administrator sets aside tax-deferred income for retirement. The employee can invest the money in any way they see fit, and the amount of money that is contributed can be altered. This flexbibility, in addition to the wide array of investment choices makes 401k plans quite different from traditional pension plans. In addition to a lack of limits on what can be invested, the benefits upon retirement are not set in stone and can be larger, depending upon how much was invested.

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