Nolo's Plain-English Law Dictionary

Legal Dictionary Home

Need Professional Help? Talk to a Lawyer

Enter Your Zip Code to Connect with a Lawyer Serving Your Area

searchbox small
401(K) Plan
A deferred compensation retirement savings arrangement in which employers withhold a portion of their employees' pretax wages and invest them in a plan where they may earn income, tax-free, until the employee withdraws the money. Some employers also contribute to their employees' 401(k) plan, often through matching employee contributions, at least up to a certain amount. Because a 401(k) is a retirement plan, employees must pay a penalty for early withdrawals, although some plans allow employees to borrow money from their plans without penalty for certain expenses.