Also known as a cash or deferred arrangement (CODA) plan, a 401(k) is a qualified defined contribution plan named for the IRC section that sets up the rules under which it operates. While in a participant-directed plan the employee may select from different kinds of investment options, a 401(k) account is typically administered by the employer. Employees get to choose where their savings will be invested, usually between a selection of mutual funds emphasizing stocks, bonds, or money market investments or some mix of those. Indeed, many 401(k) plans also offer the option to purchase the company's stock, though employees can generally re-allocate money among those investment choices at any time.

As we've seen, however, with more and more companies looking for ways to enhance their retirement plan options — including shutting down their own defined benefit plans — 401(k) plans are enabling some workers to put a portion of their regular contributions into an annuity that provides guaranteed income after retirement.