Glossary of Terms

401k 2019-06-28 08:00:00

401k

A 401(k) plan is an employer-sponsored retirement plan that allows eligible employees to make tax-deferred contributions from their salaries or wages. Employers can offer to match employee contributions up to a certain percentage of salary or specific dollar amount.

The 401(k) plan was introduced by law in 1978. The IRS limits the amount an individual can invest into a 401(k). In 2019, the contribution limit was set at $19,000. Withdrawals from a 401(k) account are taxed and are charged with a 10 percent early-withdrawal penalty if drawn upon before a certain retirement age.