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It's a sort of retirement fund that you can set up through some employers. They set aside a cetain amount of your income and usually match it in some way. It's invested in markets or other stuff by the owner of the 401k company. The IRS doesn't tax you on it until you withdraw it at it's maturity. Then you pay income tax on it. If you withdraw early any amount then you have to pay a penalty as well as the tax on the amount. Of course you get interest on the funds you have in it.
I'm sure I left some details out but thats it in a nutshell.
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