401(k) Plan Definition: How It Works & Limits

investopedia.com:

A 401(k) plan is a retirement savings plan offered by many American employers that has tax advantages to the saver. It is named after a section of the U.S. Internal Revenue Code.

The employee who signs up for a 401(k) agrees to have a percentage of each paycheck paid directly into an investment account. The employer may match part or all of that contribution. The employee gets to choose among a number of investment options, usually mutual funds.

The 401(k) plan was designed by Congress to encourage Americans to save for retirement. Among the benefits they offer is tax savings.

There are two main options, each with distinct tax advantages:

Not all employers offer the option of a Roth account.

If the Roth is offered, the employee can pick one