401 (k)

A 401(k) is a qualified retirement plan that allows employees to divert a portion of their salary into long-term investments. A defined-contribution plan on a tax deferred basis, it has grown to become the popular type of employer-sponsored retirement plan in America. As only few other plans can match the relative flexibility of the 401(k), it allows you to control how your money is invested. Most 401(k) plans offer a spread of mutual funds composed of stocks, bonds, and money market investments, with the most popular option tends to be target-date funds. However, the biggest drawbacks of a 401(k) are plan fees and limited investment options.