401(k) Plan

Category: Retirement

Definition

A 401(k) is a retirement savings and investment plan offered by employers. It allows eligible employees to save and invest for their own retirement on a tax-deferred basis. Contributions are deducted directly from your paycheck.

Example

Your employer offers a 401(k) and will match 100% of your contributions up to 5% of your salary. If you earn $60,000 and contribute 5% ($3,000), your employer will also contribute $3,000. This is essentially a 100% return on your investment instantly.

Calculation / Formula

Calculations typically involve projecting future growth based on contributions, company match, and expected market returns. The primary immediate calculation is determining the contribution amount needed to get the full employer match.