401(k) Plan


DEFINITION of '401(k) Plan'

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.


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BREAKING DOWN '401(k) Plan'

Caps placed by the plan and/or IRS regulations usually limit the percentage of salary deferral contributions. There are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan. Plans that allow participants to direct their own investments provide a core group of investment products from which participants may choose. Otherwise, professionals hired by the employer direct and manage the employees' investments.

  1. Qualified Automatic Contribution ...

    Also known as QACAs, these were established under the Pension ...
  2. Cliff Vesting

    The process by which employees earn the right to receive full ...
  3. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  4. Roth IRA

    An individual retirement plan that bears many similarities to ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  6. 457 Plan

    A non-qualified, deferred compensation plan established by state ...
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  1. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  2. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  3. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  4. Who offers 401(k) plans?

    401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>
  5. Do 401(k) savings earn interest?

    While there is a wide array of investment accounts available to investors, one of the most common for employees is the 4 ... Read Full Answer >>
  6. What fees are associated with target-date funds?

    Target-date funds have two types of fees. The first type of fee is paid to the company managing the fund and selecting the ... Read Full Answer >>
  7. Why is my 401(k) not FDIC-Insured?

    401(k) plans are not FDIC-insured because they are typically composed of investments rather than deposits. The Federal Deposit ... Read Full Answer >>
  8. How soon should I start saving for retirement?

    The best answer to the question, "How soon should I start saving for retirement?", is probably, "yesterday," and the second ... Read Full Answer >>
  9. Can I use my 401(k) as a collateral for a loan?

    Although federal Internal Revenue Service, or IRS, regulations prohibit using a 401(k) account as collateral for a loan, ... Read Full Answer >>
  10. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  11. Over what period should I use dollar cost averaging?

    Dollar cost averaging is a strategy that mitigates the timing risk of investing a large sum of money on a particular day. ... Read Full Answer >>
  12. What are the tax advantages of a Roth 401(k) over an IRA or traditional 401(k)?

    Roth 401(k) dollars are essentially subject to the same income tax rules as Roth IRA. Funds already held within a Roth 4 ... Read Full Answer >>
  13. What is the difference between a 401(a) and a 401(k)?

    The difference between a 401(a) plan and a 401(k) plan is a 401(a) plan is any employer-only contribution plan such as a ... Read Full Answer >>
  14. Why would an employer offer a 401(a) plan?

    An employer offers a 401(a) plan if it is a government institution, nonprofit or educational organization and wants to offer ... Read Full Answer >>
  15. What rate of return should I expect on my 401(k)?

    An employer-sponsored retirement plan such as a 401(k) can be a valuable tool in accumulating savings for the long-term. ... Read Full Answer >>
  16. What are the best ways to pay less income tax?

    Regardless of income, no one enjoys paying taxes. From part-time waiters to millionaire investors, everyone is looking to ... Read Full Answer >>
  17. Are Roth 401(k) plans matched by employers?

    Roth 401(k) plans are typically matched by employers at the same rate as they match traditional 401(k) plans. Some employers ... Read Full Answer >>
  18. Who is eligible for a qualified retirement plan?

    In order to be eligible for a qualified retirement plan through an employer, employees must meet the particular eligibility ... Read Full Answer >>
  19. Is a 401(k) a qualified retirement plan?

    A 401(k) is a qualified retirement plan. Qualified retirement plans must satisfy IRS requirements for both setup and operations. ... Read Full Answer >>
  20. Is an individual/independent 401(k) a qualified plan?

    An individual 401(k) qualified plan, also referred to as a solo, one-participant or independent 401k plan, is a popular retirement ... Read Full Answer >>
  21. What are the contribution limits of a 401(k) vs. a Roth 401(k)?

    According to U.S. News & World Report, the contribution limits for the 2014 tax year for a 401(k) and a Roth 401(k) are ... Read Full Answer >>
  22. What are the main differences between a Roth 401(k) and a 401(k)?

    Many investors have questions about the investment options of a Roth 401(k) vs 401(k). A Roth 401(k) and a traditional 4 ... Read Full Answer >>
  23. How do you withdraw money from your 401(k)?

    The method and process of withdrawing money from your 401(k) will depend on your employer and the type of withdraw you choose. ... Read Full Answer >>
  24. What are qualified retirement plan types?

    A qualified retirement plan is simply a plan that meets the requirements set out in Section 401(a) of the U.S. tax code. ... Read Full Answer >>
  25. What is a 401(k) rollover?

    A rollover occurs when a plan participant takes a distribution of cash or other assets from a 401(k) plan and then contributes ... Read Full Answer >>
  26. What happens to my 401(k) plan if I switch jobs?

    When you change jobs, you are likely to be given a stack of paperwork at orientation, some of which may pertain to your new ... Read Full Answer >>
  27. Is there a minimum I have to contribute to my 401(k) plan?

    No, there is no minimum you have to contribute to your traditional 401(k) plan, but to maximize your retirement account potential, ... Read Full Answer >>
  28. What's the difference between a 401(k) and a pension plan?

    The biggest difference between a 401(k) plan and a traditional pension plan is the distinction between a defined benefit ... Read Full Answer >>
  29. Do I need an employer to set up a 401(k) plan?

    If you are employed by a company that offers a 401(k) plan, it is best that you go through your employer to fund an investment ... Read Full Answer >>
  30. What does it mean if my 401(k) plan has been frozen?

    You are most likely to experience a 401(k) freeze following a merger where the new company must determine what to do with ... Read Full Answer >>
  31. What is the penalty for taking money out of my 401(k) before I'm 59 years old?

    401(k) plans follow tax rules similar to those governing IRAs, each carrying a 10% penalty for distributions that occur before ... Read Full Answer >>
  32. What is the maximum I can contribute to my 401(k) plan?

    The maximum you can contribute to your 401(k) plan annually is $17,500 if you are under the age of 50. If you are 50 or older, ... Read Full Answer >>
  33. If a company undergoes an acquisition can an employee withdraw 401(k) funds tax free?

    Although the participant may be eligible to withdraw the funds if a plan is terminated as a result of an acquisition or other ... Read Full Answer >>
  34. I have just been laid off. Can I use my 401(k) for living expenses now and report ...

    Any amounts withdrawn from your 401(k) plan must be treated as ordinary income for the year the amount is distributed from ... Read Full Answer >>
  35. I am 61 years old and would like to contribute to my employer's 401(k) plan. Is there ...

    There is no age limit. As long as you are still employed by the company that sponsors the 401(k) plan, you may participate ... Read Full Answer >>

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