[Kirby64]

> The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

Not quite - you're given a tax benefit (i.e., not taxed) on your contributions when you contribute them, but when you withdraw funds you pay income tax. If you withdraw before the 'retirement age' (55.5, as you say) then you pay an additional penalty.

The idea being that you would be in a higher tax bracket during your earning years, but in retirement you'd be theoretically in a lower tax bracket, therefore would get some tax savings. Additionally, since the tax savings is taken off of the 'top' of the bracket when you contribute and when you withdraw its added to the 'bottom'.

There's also Roth contributions (where you get no benefit now, but don't pay taxes on gains later when you withdraw), but not all plans offer this.