What Is a 401(k)?
A 401(k) is a US retirement savings account offered through your job. Money goes in straight from your paycheck and is invested, usually in funds, with tax benefits.
How a 401(k) works
You choose a percentage of each paycheck to save. It goes into the account before you see it. Inside, you pick from a list of funds, often index funds and target-date funds. There is a yearly limit on how much you can put in.
The employer match
Many employers add money too. A common deal is matching 50% of what you save, up to 6% of your pay. That is free money, which is why the first rule of 401(k)s is: save at least enough to get the full match.
Traditional vs Roth 401(k)
With a traditional 401(k), you pay no income tax on the money now, but pay tax when you take it out in retirement. With a Roth 401(k), you pay tax now, and qualified withdrawals later are tax-free. See Roth IRA.
Withdrawal rules
The money is meant for retirement. Taking it out early, usually before age 59½, normally means taxes plus a penalty, with some exceptions.
See it in real companies
Open a company to see what it sells and how it makes money.