A 401(k) is a retirement plan sponsored by the employer. 401(k) gives you a possibility to defer taxes until you're retired. Also, a lot of employers can partially match your contributions, so participation in your employer's 401(k) is both like giving yourself a raise and a tax break. 401(k) is one the most popular saving plans in the United States.

Since 1981, American workers have had the opportunity to save for their retirements with at type of employer-sponsored plan know as a 401(k).

The term “401(k)” refers to the chapter of the Internal Revenue Service tax code that enacted the plan after it was legislated by Congress. For-profit companies can sponsor 401(k) plans for their employees. A similar scheme, known as a 403(b) retirement plan, is available for employees of not-for-profit corporations such as churches and community organizations.

Employees who want to save for their retirement often invest in what are known as 401(k) plans sponsored by their employers. These plans are great for saving taxes now and having money later, but they do come with certain restrictions.

Besides taking early withdrawals for hardship reasons, an employee also can “borrow” from his or her 401(k) account in an emergency. It’s not a good idea, but it can be done if the employee’s plan allows for it.