401(k) plan

A 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account.

There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn.