A 401(k) plan is a salary reduction plan that is offered by employers. It offers tax deferred benefits for your retirement investments. You contribute a percentage of your pretax income each pay period to your 401(k) and choose specific investments from among those that are offered for the plan. Any earnings you receive from the 401(k) plan are accumulated tax deferred. The maximum annual employee contribution is $18,000, plus a $6,000 catch-up provision for employees over the age of 50. Typically these plan tend to have more reporting requirements and administrative operating costs.

Contributions to a Roth 401(k) plan can also be made with after-tax dollars.