401(k)

Definition

A retirement savings plan offered through an employer, where money is taken from your paycheck and invested, often with tax advantages.

The story

In a traditional 401(k), contributions go in before income tax and are taxed when withdrawn in retirement; a Roth 401(k) is funded with money that's already been taxed, and qualified withdrawals in retirement are tax-free. Many employers add a match, for example 50 cents for every dollar you put in, up to 6% of pay. The IRS (Internal Revenue Service) sets a yearly limit on how much you can contribute.

Why markets watch it

For millions of people, a 401(k) is their main link to the stock and bond markets.

See it in the story

Connects to

IRAIndex fundMutual fundCompound interest