401(K) plans are tax-deferred retirement savings plans for employees. The employer sets them up and each company has a slightly different 401(K). They are part of a family of retirement plans known as "defined contribution" plans - the amount contributed is defined by the employer or the employee. 401(K) gets its name from the section and paragraph of the Internal Revenue Code - section 401, paragraph K.

A 401k plan is an employer sponsored retirement plan and is grouped into two categories-defined benefit and defined contribution. With a defined benefit plan, the employer promises to pay a defined amount to retirees who meet certain eligibility criteria. With a defined contribution plan, the plan defines the contributions that an employer can make and not the benefit that the employee will receive at retirement.

A defined benefit plan usually links the benefit to the amount of service and is based on the final average salary. Employees can usually predict the monthly retirement income they might receive with this type of plan and might also be given the choice of a lump-sum benefit at retirement.

A defined contribution plan is not a defined benefit so the employee cannot predict a monthly retirement income. If an employee leaves the company, they usually receive the proceeds in a current or deferred lump sum or annuity.

Companies are prohibited by law from tapping into the money in their 401(k). But if your company goes bankrupt and you have 401(k) money invested in their stock fund you will likely lose that money.