a 401(k) plan in an employee-funded savings plan for retirement. It takes its name from the Internal Revenue Code that created it. The 401(k) plan allows you to contribute up to $15,500 of your salary in 2007 to a special company account set up for you. Future contribution rates will be adjusted annually for inflation. Commenced in 2006, 401(k) plans now come in two varieties: Traditional, and Roth-Style plans.
The traditional plan allows you to defer taxes on the portion of your salary that went into your 401(k) until the funds are withdrawn in retirement. this makes your taxable income reduces therefore lowering your immediate tax burden.
The Roth-style plan contributions are made in after-tax dollars so you see no immediate tax benefit but balances grow tax free from then on so you do not get taxed upon withdrawal at retirement.
Another great advantage of a 401(k) plan is that employers may match part or all of the contributions you make to your plan. For example, an employer may put in 50% of your first 6% you put in to your 401(k). This "matched money" is like getting extra money on top of your salary although there sometimes is a "vesting" or "waiting" period before you have full claim to this money.
401(k)s usually also provide you with several options in which to invest including: stocks, bonds, or money market investments. Also, some 401(k)s allow you to borrow as much as 50% of your vested account balance, up to $50,000.

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