A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a portion of their paychecks before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
Employers may offer to match employee contributions, providing an additional benefit for employees who participate in the plan.
Contributions to a 401(k) are limited to $19,500 in 2021 for individuals under age 50 or $26,000 for those over 50 years old (with catch-up contributions). Employers may also set limits on how much employees can contribute each year.