GLOSSARY // General Investing
401(k)
A 401(k) is an employer-sponsored retirement account that lets employees contribute a portion of pretax salary, often with an employer matching contribution up to a set percentage. Contributions and investment growth are tax-deferred until withdrawal in retirement, when withdrawals are taxed as ordinary income.
Failing to contribute enough to capture the full employer match is often described as leaving free money on the table, since the match is effectively an immediate, guaranteed return on that portion of contributions before the money is ever invested.
An employee earning $80,000 who contributes 6% ($4,800) to capture a full 100% employer match effectively turns that $4,800 into $9,600 in the account immediately, before any investment growth at all.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.