What is a 401(k) Plan?

A 401(k) plan is specifically designed as a retirement savings plan that is sponsored by an employer, allowing employees to save and invest a portion of their paycheck before taxes are taken out. This plan provides several benefits, such as tax deferral on contributions and potential matching contributions from the employer, which can significantly enhance savings for retirement.

This option accurately captures the essential purpose of a 401(k). It serves as a vehicle for employees to prepare for retirement by accumulating savings, often with some level of employer contribution as an incentive for employees to participate. Contributions are typically directed into various investment options such as mutual funds or stocks, depending on the plan offered by the employer.

The other possibilities listed do not encompass the full nature and function of a 401(k) plan, reinforcing why the correct description associating it with employer-sponsored retirement savings is the most accurate choice.