401(k)

Definition

A defined-contribution retirement savings plan sponsored by employers in the U.S., named after the IRS tax code section. The primary vehicle Americans use to pretend they're saving adequately for retirement while knowing they aren't.

Example Usage

I'm currently contributing 8% of my salary to my 401(k), and my employer matches 4%.

Origin

Created by the Revenue Act of 1978; popularized as companies shifted from pensions to defined-contribution plans in the 1980s

Fun Fact

The average 401(k) balance for workers in their 60s is only about $117,000—far below what most need for retirement.

Source: U.S. retirement benefits terminology

Related Terms

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