The 401(k) plan is a type of employer-sponsored retirement plan named after a section of the United States Internal Revenue Code. A 401(k) plan allows a worker to save for retirement while deferring income taxes on the saved money or earnings until withdrawal. Comparable types of salary-deferral retirement plans include 403(b) plans covering workers in educational institutions, churches, public hospitals, and non-profit organizations and 457 plans which cover employees of state and local governments and certain tax-exempt entities.

As an employee benefit, a 401(k) must be sponsored by an employer, typically a private sector corporation. A self-employed individual can set up a 401(k) plan and, until 1986, a government entity could do so as well. The employer acts as a plan fiduciary and is responsible for creating and designing the plan, as well as selecting and monitoring plan investments. (In practice, nearly all employers outsource all of this work to one or more financial services companies, such as a bank, mutual fund, third party administrator, or insurance company.)

The employee elects to have a portion of his or her wage paid directly, or "deferred", into his or her 401(k) account. In trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time.

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