A 401k is a retirement savings plan which allows workers to save for retirement and
have savings invested while putting off current income taxes on the money saved and its earnings until the money iis withdrawn. 401k plans are sponsored by employers and it is up to the employees whether or not they want to have one. A portion of the employees earnings goes into the bank at the particular times they choose. Sometimes an employer will decide to match and deposit the same amount of money the employee sets aside. This is often considered as one of the benefits of working for the company. Many companies have 401k plans that allow an option to purchase the company's stock with the understanding that the employee can relocate this money to another account at any time.
401k contributions are deposited on either a pre-tax or an after tax basis. Pre-tax contributions are contributions where the employee does not pay federal income tax on the amount of current income that they have put to a 401k account. This allows the employee to pay taxes on the money as they withdraw it from the account. After tax contributions are contributions where the money is put into a Roth account. This means that income tax is either paid or withheld in the year contributed. Withdraws from 401k plans are limited depending on the employer. Usually any money taken out will have a ten percent excise tax applied based on the amount distributed. The employer will set the maximum amount of money an employee can take out of the account. Some employers do not allow any money to be taken out of the accounts at any time and if that occurs, the employee would have to resign from their employment. Loans may be taken out against 401k plans, depending on the agreements. The money then gets paid back with interest.