A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck. Some employers will match a portion of the employees’ contribution with their own funds. 401(k)s are subject to contribution maximums and rules about when and how much money can be withdrawn. There are two types of 401(k)s, Traditional and Roth. In a Traditional 401(k), the funds are invested before taxes are taken out, and taxes aren't paid until the money is withdrawn from the account. In a Roth 401(k), income taxes are paid on the funds before they are invested, and funds withdrawn from a Roth 401(k) are not subject to taxes.
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