Investing option
401(k)
A 401(k) is an employer-sponsored retirement plan with plan-specific investment options and IRS rules.
What this page covers
This explainer is designed to show what the option is, how the basic mechanics work, and which details people commonly compare before looking at providers, products, or tools.
- Plain-English steps for how 401(k) works.
- A simple example that shows the moving parts without selecting a product.
- Comparison factors, calculators, and source links for deeper research.
How it works
1
An eligible employee enrolls through the employer’s plan.
2
Contributions are taken from payroll based on plan rules.
3
The plan may offer employer matching or other contributions.
4
The employee selects investments from the plan menu.
Simple example
An employee compares contribution levels inside an employer plan.
Contribution sourcePayroll
Plan menuEmployer selected
Possible featureEmployer match
Rule sourcePlan + IRS
Plan fees, match formulas, vesting, investment choices, and withdrawal rules vary by employer plan.