Definition
An employer-sponsored retirement account funded straight from payroll, with contribution limits the IRS adjusts each year. Contributions are pre-tax (traditional) or after-tax (Roth 401(k)), growth is untaxed while invested, and many employers match part of what you put in.
Why it matters
The 401(k) is most Americans' largest wealth-building machine: automatic payroll funding, decades of untaxed compounding, and the employer match, which is an instant guaranteed return no market can offer.
Example
On an $80,000 salary with a 50% match on the first 6%, contributing $4,800 a year brings a $2,400 match. That is a guaranteed 50% return on those dollars before any market growth.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.