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401(k)

Definition: 

Named after the portion of the federal tax code that authorizes it, a 401(k) is a retirement plan sponsored by an employer permitting contributing employees to deposit a portion of their pay before taxes are levied on the income. Often these funds are matched by the employer, at least in part, and investment income gained in the plan can build up tax-free until it is withdrawn. Withdrawals before age 55 are usually penalized, though it is sometimes possible to borrow funds.