A 401K is a type of retirement savings and investing account offered to employees from a company. The money an employee contributes to the 401K is taken before taxes, maximizing the benefit to the employee. If left in the 401K until the age of 59 ½ the money can be withdrawn with no early withdrawal penalty.
Sometimes employers will match an employee’s contributions up to a certain percent, offering in effect free money towards your retirement as a company benefit. These matching programs are incentives for employment and work to help grow your 401k balance as you save towards retirement.
Money withdrawn from a 401K is called a distribution. While money put into the account was not taxed, distributions taken out of the account will be taxed as regular income. The rate of tax you pay will be determined by your income.