What is a 401(k) account?

A 401(k) is a retirement savings plan in which employees elect to have a portion of their income set aside in an employer-sponsored account, according to the Internal Revenue Service. Employers sometimes contribute additional funds to a worker's 401(k). Specific amounts or allocations vary by company.

The IRS does limit the amount of money an employee can allocate to an elective deferral plan such as a 401(k). The limit established in 2015 was $18,000 per year, according to the IRS. This limit was up from $17,500 in 2014. The IRS reviews its limits each year and makes cost-of-living adjustments. People age 50 and older can defer another $6,000 per year.