401(k)

401(k) — noun

1. A workplace retirement savings arrangement in the United States where an employe

1.nounB2
Definition

A workplace retirement savings arrangement in the United States where an employee puts aside money from each paycheck before income tax is taken out, often with the employer adding extra funds, and where the combined savings grow through investments until the person retires and takes the money out.

Example

Hana set aside six percent of each paycheck into her 401(k).

contribute + into + 401(k)

Kwame's employer matches 401(k) contributions dollar for dollar up to five percent.

employer + matches + 401(k) contributions

Common collocations
  • contribute to a 401(k)
  • enroll in a 401(k)
  • max out a 401(k)
  • 401(k) contribution
  • 401(k) match
  • 401(k) plan
  • 401(k) account
  • 401(k) balance
  • roll over a 401(k)
Synonyms
  • IRA

    An individual retirement account you open yourself, not tied to an employer

  • Roth IRA

    A type of individual retirement account funded with after-tax money, so withdrawals in retirement are tax-free

  • 403(b)

    A similar retirement plan but for employees of public schools and certain non-profit organisations

Grammar Patterns

contribute to a 401(k)

enroll in a 401(k)

401(k) + plan

401(k) + account

Usage Note

Specific to the United States. The name comes from section 401(k) of the Internal Revenue Code. Similar workplace retirement plans in other countries go by different names — for example, RRSP in Canada or superannuation in Australia.

Common Mistakes

I receive a 401(k) from the government after I retired.
I built up savings in my 401(k) while I was working, and now I draw from it.
A 401(k) is funded by you and your employer during your working years; it is not a government pension paid after retirement.

Synonym discussion

Sense: noun/1

A 401(k) is set up through your workplace and lets you save pre-tax money that your employer may match. An IRA is similar in its tax-deferred growth, but you open and manage it on your own — there is no employer involvement. A Roth IRA uses after-tax contributions, so you pay no tax when you withdraw in retirement, unlike a 401(k) where withdrawals are taxed. A traditional pension is fundamentally different: the employer promises a fixed monthly payout for life based on your salary and years of service, and you do not control how the money is invested. With a 401(k), by contrast, the final balance depends on how much was contributed and how well the investments performed — there is no guaranteed payout.

IRApension ↗Roth IRA

Common collocations

Nouns

  • 401(k) plan
  • 401(k) account
  • 401(k) contribution
  • 401(k) match
  • 401(k) balance

Phrases

  • contribute to a 401(k)
  • enroll in a 401(k)
  • max out a 401(k)
  • roll over a 401(k)

Prepositions

  • into a 401(k)
  • in a 401(k)
  • through a 401(k)
  • to a 401(k)

Etymology

EnglishUnited States legal code

Named after section 401(k) of the United States Internal Revenue Code. This section was added to the tax code as part of the Revenue Act of 1978 and became effective in 1980. The provision was originally intended to clarify the tax status of profit-sharing plans, but benefits consultant Ted Benna recognised it could be used to create a new kind of employee-funded retirement account. The first 401(k) plan was offered by Johnson & Johnson in 1982, and the accounts quickly spread to become the dominant form of retirement saving in the US private sector.