401(k)s are named for the section in which the Internal Revenue Code authorized and specified the use of this type of defined contribution plan that allows employees to make pre-tax contributions.
Generally, 401(k) plans
are known to be a type of retirement savings plan that employers can choose to set up for their employees. Employee 401(k) contributions are automatically deducted from their paycheck each pay period before taxes are taken out. Employees' contributions are invested, at their choosing, into one or more funds provided in the plan. Employers may choose to match the funds. Employer costs for plan are tax-deductible and employees' contributions are tax-deferred. Different types of 401(k)s include: