What is 401(k)?
A retirement account through your job, often with free matching money
Full Explanation
A 401(k) is an employer-sponsored retirement account. Contributions typically come out of your paycheck before taxes, lowering your taxable income now, and the money grows tax-deferred until retirement (when withdrawals are taxed as regular income). Many employers "match" a percentage of what you contribute — essentially free money.
Real-World Example
Your employer matches 100% of contributions up to 4% of salary. Earning $40,000 and contributing 4% ($1,600) gets you another $1,600 from your employer — an instant 100% return before the money is even invested.
Pro Tip
Always contribute at least enough to get the full employer match — skipping it means turning down free money. The 2026 contribution limit is $23,500/year (higher with catch-up contributions if you're 50+).
Related Basics Terms
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