A 401(k) is a retirement savings account that comes with your job. Money comes out of your paycheck before taxes and goes into the account, where it grows for later. If your job matches part of what you put in, that match is extra pay — free money toward your retirement.
A 401(k) is not a stock or an investment by itself. It is a container — an account with special tax rules. You choose investments to hold inside it, like funds that own lots of stocks or bonds. The container is what makes it a 401(k).
How money gets in
You pick a slice of each paycheck — say 5% or 10%. Your employer sends that slice straight into the account before you ever see it. You never have to remember to save. It just happens every payday.
The match is the best part
Many employers add money on top of yours. A common deal: they add 50 cents for every dollar you put in, up to a limit. That is not a bonus you might earn. It is part of your pay. If you do not put money in, you leave that part of your pay on the table.
Say your paycheck is $1,000 and you put in $100. With a typical pre-tax 401(k), the tax folks only tax $900 of that check — the $100 went in first. Then your job adds its 50% match: $50. Your account just got $150, and only $100 of it came out of your pocket.
What about taxes?
With the usual kind (called traditional), you skip tax on the money now and pay tax later, when you take it out in retirement. Some jobs offer a Roth version instead: you pay tax on the money now, and then it comes out tax-free in retirement. Either way, the money inside grows without a tax bill each year.
If you leave the job
The account is still yours. You can leave it where it is, move it to your new job's plan, or roll it over — that just means moving it into another retirement account without cashing it out. Cashing it out early is the expensive move, as the warning below explains.