Glossary
401(k)
A 401(k) is an employer-sponsored retirement plan that lets employees defer part of each paycheck into an investment account, where the money grows tax-deferred (or tax-free in a Roth account) until retirement.
Employees choose how much to contribute, up to an annual IRS limit, and pick investments from a menu the employer selects. Many employers add a matching contribution — money that is part of compensation but only collected by employees who participate. Traditional contributions reduce taxable income now and are taxed at withdrawal; Roth contributions are taxed now and come out tax-free if the rules are met.
Why it matters in practice
For most working households, the 401(k) is the largest single retirement asset they will ever own. The decisions inside it — contribution rate, whether the full match is captured, investment selection, and what happens to the account at a job change — compound over decades.
In California
California requires employers with at least one eligible employee to offer a retirement plan or register for the state-run CalSavers program. A 401(k) is the most common way employers satisfy that mandate while offering higher limits and matching.
Related terms: 403(b) · Safe Harbor 401(k) · Vesting · Rollover · Catch-Up Contribution