A 401K plan is a type of retirement account in which an employer funnels money from the employee's earnings directly into the retirement account. Because the employee does not have access to these funds, it is one of the best ways to put money away for retirement. This type of retirement account is tax deferred which means that the funds are not taxed going into the account but rather when they are being withdrawn. The largest benefit here is that when it comes time to withdraw the funds, in retirement, the individual's income tax bracket will be much lower than it is currently, during their wage earning years. This means a lower amount of tax levied on the funds in total.