401(k)
Also known as: 401k plan
A 401(k) is the most common workplace retirement plan in the United States, named after the section of the US tax code that created it. Employees choose to divert a percentage of each paycheque into an investment account, and many employers add a matching contribution up to a set limit. Contributions to a traditional 401(k) are made before tax and grow tax-deferred, so tax is paid only on withdrawal; a Roth 401(k) reverses this, taxing contributions upfront and allowing tax-free withdrawals later.
The plan is central to how Americans save for retirement because it combines automatic payroll deduction, tax advantages, and — where offered — an employer match that is effectively additional pay. Annual contributions are capped by the US tax authorities, and funds are generally intended to stay invested until retirement age, with penalties for early withdrawal. For employers, a competitive match is a standard part of the total rewards package used to attract and retain staff.
The 401(k) is a US-specific instrument, so it does not apply directly to a workforce employed in India. The closest Indian equivalents are the statutory Employees’ Provident Fund (EPF), to which both employer and employee contribute a fixed share of salary, and, at senior levels, employer-funded superannuation schemes. A multinational running a Global Capability Centre in India offers provident fund and often superannuation to its Indian employees rather than a 401(k), while its US employees remain on the home-country plan — a distinction that matters when designing globally consistent total-rewards frameworks.
Frequently asked questions
What is a 401(k)?
A 401(k) is a US employer-sponsored retirement savings plan that lets employees contribute part of their pay, often with an employer match, and grow those savings tax-deferred until retirement. It is the most common workplace retirement plan in the United States.
What is the difference between a traditional and a Roth 401(k)?
A traditional 401(k) takes contributions before tax and taxes withdrawals in retirement, while a Roth 401(k) taxes contributions upfront and allows qualified withdrawals to be tax-free. The choice depends largely on whether an employee expects a higher or lower tax rate in retirement.
What is an employer 401(k) match?
An employer 401(k) match is an additional contribution the employer pays into an employee’s plan, usually up to a percentage of salary, when the employee contributes their own money. It is effectively extra compensation and a common part of a US benefits package.
Is there a 401(k) equivalent in India?
India has no 401(k), but its closest equivalents are the statutory Employees’ Provident Fund (EPF), funded jointly by employer and employee, and employer-funded superannuation schemes at senior levels. A GCC in India offers these to Indian staff rather than a 401(k).