A 401(k) plan is a
retirement savings plan that is funded by
employee contributions. Often it is additionally funded by matching
contributions from the
employer. One of the key points of these plans is that the contributions are taken out of your
salary before
taxes. Also the funds grow
tax-free until withdrawn.
But you do get
taxed when you withdrawl it from the plan.
Also there are
penelties if you don't meet the withdrawl requirements (you are 59 1/2, or using the money to buy a home, or some other things).
These plans can be setup by for-profit and many tax-exempt organizations for use by their employees.
The 401(k) plan gets its name from the section of the Internal Revenue Code of 1978.
It is a VERY good idea to get take advantage of this if your employer offers one. The sooner the better. But like all investment desicions you should do some research on it to find out how you can best take advantage of it, what some of the down-sides are, and how not to make mistakes with it to maximize your returns.