A retirement savings plan, established by an employer, that allows employees to send a percentage of their pre-tax compensation into a retirement account. Employers may match a percentage of the amount that the employee has withheld. If funds are withdrawn from a 401(k) before the owner is age 59⁄, the proceeds are taxed at the individual’s regular rate and a 10 percent penalty is assessed. Many 401(k) plans allow employees to borrow against the money in the plan. Mutual fund companies often are hired by corporations to manage the 401(k) plan.
Webster's New World Finance