What option does a 401(k) plan generally provide its participants?

A 401(k) plan primarily provides participants with a salary deferral option, allowing employees to contribute a portion of their pre-tax earnings into the retirement savings account. This deferral means that the contributions are made before income taxes are applied, effectively lowering the employee's taxable income for the year. The funds then grow tax-deferred until withdrawal, typically during retirement when the tax burden is often lower.

This feature encourages individuals to save for retirement and is a significant advantage of participating in a 401(k) plan. The ability to defer a portion of their salary makes it easier for employees to save over time, taking advantage of compound interest on their investments.

While some 401(k) plans may offer loans for hardships or specific purchases like real estate, salary deferral is the primary and fundamental benefit associated with these plans. Health insurance benefits and pension plan transfers do not relate directly to the core function of a 401(k), as health insurance is generally provided separately and pension plans are distinct from defined contribution plans like the 401(k).