Confused by Your 401(k)? Here's a Simple Guide
You probably already know that a 401(k) has something to do with saving for retirement. If that's where your knowledge of 401(k)s begins and ends, you've come to the right place.
A 401(k) is a special tax-advantaged retirement savings account that your employer makes available to you. If your company has a 401(k) plan, you can choose to direct some of your wages into your 401(k) account instead of to your paycheck. In your 401(k), your money will be invested in assets that will (hopefully) grow in value over time, eventually leaving you with enough money to retire on. One of the major benefits of a traditional 401(k) is that your contributions come out of your pre-tax salary, so contributing money will actually reduce your tax bill.
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Source: Fool.com
