401(k) retirement plans or 401(k)s for short, are the most common type of employer -sponsored retirement plan in the unite States. They're offered primarily by larger; for-profit companies with 10 or more employees, though tax-exempt organizations may also set up 401(k) plans.

How 401(k) Plans Work

401(k) plans allow you to contribute a certain amount of your paycheck each pay pay period into your own 401(k) retirement account. The amount of money that you contribute each period can be a set amount or a fixed percentage of your total annual pay. The investment options available to you in a 401(k) plan vary, based on:

• The selection of investments offered by the firm hired to administer the company's 401(k) accounts
• The investments from that selection that your company chosses to offer employees.

For instance, if your company uses Fidelity investments to administer its 401(k) plan, its plans will offer only investments that Fidelity sells. The company might also choose to restrict that selection further by allowing you to invest 401(k) contributions exclusively in Fidelity mutual funds. In addition, your company may offer you an incentive to encourage you to invest a portion of your contributions in the company's own stock.

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