The 401(k) turns 40 years old this year. It may be difficult to believe that this type of retirement plan has been around for so long. You also may be wondering, “What is a 401(k) plan ?”

The 401(k) has been and continues to be, a useful savings tool for many Americans as they save for retirement, that allows people to save money pre-tax through payroll deductions. There are contribution limits and other rules for an individual’s eligibility to contribute to this type of plan, and there is usually a choice of investment options available for the employee to pick from when enrolled in the plan. A more detailed description for you is that according to the IRS, “A traditional 401(k) plan allows eligible employees (i.e., employees eligible to participate in the plan) to make pre-tax elective deferrals through payroll deductions. In addition, in a traditional 401(k) plan, employers have the option of making contributions on behalf of all participants, making matching contributions based on employees’ elective deferrals, or both. These employer contributions can be subject to a vesting schedule which provides that an employee’s right to employer contributions becomes nonforfeitable only after a period of time, or be immediately vested.”

To learn if your employer offers this type of retirement plan and find out if you are eligible to participate in it you can contact your employer’s human resources department.

To learn more about finance and managing your money feel free to take a look at the GCPL Personal Finance Guide.