Why Set Up A 401K Plan? 
A 401 -LRB- k -RRB- plan is established by an employer for the benefit of employees . The employer might do this to retain trained workers and to demonstrate appreciation . Employees are invited to participate in the companys 401 -LRB- k. -RRB- Normally , a sum of money is collected each pay period for the 401 -LRB- k. -RRB- The amount collected reduces the taxable income of the employee . Some employers match contributions , generally to a specified limit . The employee and the employer contributions are held in a separate account . 