What is a 401(k) plan?

A 401(k) plan is an employer-sponsored retirement savings plan, which allows employees to save and invest a portion of their paycheck before taxes are taken out. This type of plan is designed to encourage retirement savings, and contributions can be made through payroll deductions. The funds in a 401(k) grow tax-deferred until they are withdrawn, usually during retirement.

Employers may also contribute to employees' 401(k) plans, often matching a percentage of employee contributions, which enhances the savings potential. This partnership between employer and employee makes the 401(k) particularly advantageous for both parties, as it helps create a reliable source of income for employees in their retirement years.

The other options describe different financial structures. An individual retirement account managed by the employee would refer to an IRA, which has different tax implications and management structures. A government-mandated retirement plan typically refers to other types of social security or mandatory pension schemes, while a mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks or bonds, but it does not specifically define a retirement savings plan like the 401(k).