What is a 401(k) plan?

A 401(k) plan is indeed an employer-sponsored retirement savings scheme that provides employees with tax benefits. It allows workers to save for retirement through payroll deductions, enabling them to invest a portion of their earnings before taxes are applied. This means that contributions are made with pre-tax dollars, reducing the employee's taxable income for the year of the contribution. Additionally, the funds in a 401(k) plan grow tax-deferred until withdrawn, which typically occurs during retirement.

The structure of a 401(k) enables employers to offer matching contributions, further incentivizing employees to save. This plan is a popular choice for retirement savings due to its tax advantages and the opportunity for growth through various investment options available within the plan, such as mutual funds and stock options.

In contrast, other options like a government savings plan with tax advantages might refer to different programs, such as IRAs or similar accounts. A personal investment account with tax penalties for early withdrawal is typically not employer-sponsored and does not capture the essence of a 401(k). Lastly, a loan program for retirees does not relate directly to the retirement savings function of a 401(k), which is specifically designed for accumulating savings to be used in retirement rather than for providing loans.