 TITLE: What Is the Difference Between a 401(k) and an IRA? CONTENT: Many companies offer 401(k) plans as a benefit to help workers prepare for their retirement years. If yours does, you can use a 401(k) to save a portion of your pretax income in an account set up by your employer. The amount you contribute is automatically deducted from your paycheck before it reaches you, just like your taxes and Social Security contribution. When you enroll in the plan, you'll be presented a choice of where you would like to invest your savings, in the form of mutual funds or exchange-traded funds.\nTo encourage participation in 401(k) plans, some employers will match contributions up to a certain amount, often a percentage of your annual income. For instance, if your company offers a 3% match, it will contribute payments equal to your contributions up to 3% of your salary. Therefore if your salary is $40,000, your employer will match your contribution dollar-for-dollar up to $1,200 a year. After that, you can continue to save, but your employer will stop donating the extra funds. An employer may also choose to match only a portion of your contribution—50 cents per dollar you contribute, for instance.\nAnother thing to know about 401(k) plans is that they tend to reward company loyalty through a process known as \"vesting.\" To completely own all contributions to your 401(k), including your employer match, you must become \"fully vested\" or risk losing a portion of it if you leave your job. Vesting rules vary by plan; some plans vest an employee immediately, some do so gradually, and others vest all at once after several years. END