Final answer:
A 401(k) is a retirement savings plan offered by employers where both the employer and employee can contribute money. Employers may also offer a matching contribution. The money in a 401(k) is invested and offers tax advantages and portability.
Step-by-step explanation:
A 401(k) is a type of retirement savings plan offered by employers to their employees. It is a defined contribution plan, which means that both the employer and the employee can contribute money to the account. The employer may also offer a matching contribution, which means that they will contribute a certain percentage of the employee's contribution. For example, if the employer has a 50% matching contribution up to 5% of the employee's salary, and the employee contributes 5% of their salary, the employer will contribute an additional 2.5% of the employee's salary.
The money in a 401(k) can be invested in various investment options such as stocks, bonds, and mutual funds. The contributions and any investment gains are tax-deferred, which means that the money is not taxed until it is withdrawn in retirement. The 401(k) plan is portable, meaning that if the employee changes jobs, they can roll over the funds into a new employer's 401(k) or into an individual retirement account (IRA).
Having a 401(k) with matching contributions is a valuable benefit because it allows the employee to save for retirement with the added advantage of receiving free money from the employer through the matching contributions.