What is a 401(k) plan primarily used for?

A 401(k) plan is primarily used for retirement savings that is sponsored by an employer. This type of retirement account allows employees to save a portion of their paycheck pre-tax, which can lead to significant tax benefits over time. Contributions are often matched by employers to some extent, providing additional incentive for employees to participate. The funds in a 401(k) grow tax-deferred until withdrawal, which typically occurs during retirement when individuals may be in a lower tax bracket.

The emphasis on retirement savings distinguishes 401(k) plans from other financial products, such as regular savings accounts meant for daily expenses or insurance products. Additionally, while some individuals may choose to invest in company stocks within their 401(k), the plan itself is not limited to this type of investment, but rather encompasses a variety of investment options tailored toward long-term growth for retirement.