Definition: When you get your first real job (a full-time job), this is one of the benefits you might receive. It's named after its location in the government tax code and it allows you to save for retirement. When you withdraw the money, it'll be tax-free. In fact, your company might even match your savings dollar-for-dollar up to a certain amount per year (usually under $10,000)!
One downside: Because 401(k) plans are directed by the company you work for, you are not given quite as many investment possibilities. Most companies will either hire and outside professional to manage the 401(k) plans or they will contract with a mutual fund company to give you a small, core group of mutual funds to choose from.
TeenAnalyst advice: Because of the match most employers make (50-100% match), it's in your best interest to utilize your 401(k) plan. However, because 401(k) plans limit the amount you can contribute, we also recommend opening up another investment account as well.