A 401 (k) plan is a retirement plan sponsored by your employer that allows you to save for retirement. What’s great about a 401 (k) plan is that it lets you defer income taxes on all the money you’ve saved and on the interest as well, until you retire and withdraw it.
Usually in the United States, you need to sign up to have some of your wages paid directly into your 401 (k) account. You can then usually choose from a number of investments – mutual funds, stocks, bonds, money market investments, and so on. Sometimes a trustee is set up to make these choices for you and you don’t get to choose which investments you prefer.
A 401 (k) Plan is a great money management strategy when planning for retirement. The tax savings can be very significant over the long term.