Lesson 3 - What is a 401(k)

3 MIN READEditorial Policy

Get to know your 401(k)

You're already working hard for your future. Now, let your 401(k) work hard for you.

What’s in a word?

Named after federal legislation passed in the 1970s, a 401(k) is a retirement savings plan offered through your employer. Here are some key 401(k) terms that are good to keep in mind:

  • Defined contribution plan: A retirement plan in which employees allocate part of their paychecks to an account funding their retirements.

  • Deferral rate: The portion of your salary you elect to withhold and transfer into your retirement plan.

  • Employer-sponsored retirement plan: A type of benefit plan, including the 401(k), offered to employees that can only be provided by employers. 

Visit our Retirement Glossary to brush up on other important 401(k) concepts.

Did you know?

A retirement plan is the most-wanted benefit after health insurance.1

How a 401(k) works

It’s easy! Decide how much money you want to contribute from your paycheck toward your 401(k). Set a percentage, and that money goes directly into your account. 

Try it out with our Retirement Savings Calculator!

Get to know your 401(k)

The purpose of a 401(k) plan is to help ensure that people can save for retirement. 

It does so through advantages like tax benefits, employer matches, and the power of compound interest—which you’ll learn more about later.

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Claudia Newman manages the Retirement Education team that helps onboard employees to their Human Interest plan and explains the benefits of a 401(k) plan by offering live training. She has been working in the 401(k) and retirement plan industry in several capacities, including relationship management, sales, and back-office support since 2010.

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The (k)ickstart™ program is administered and offered by the recordkeeper, Human Interest Inc. ("HII"). HII's subsidiary and registered investment adviser, Human Interest Advisors ("HIA"), receives a fee based on assets under management. As such, HIA will earn more in asset-based fees if a plan participant increases their contribution in connection with the program.