401(k) Plan

AAA

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.

INVESTOPEDIA EXPLAINS '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are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan.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.

VIDEO

RELATED TERMS
  1. Qualified Automatic Contribution ...

    Also known as QACAs, these were established under the Pension ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  3. 457 Plan

    A non-qualified, deferred compensation plan established by state ...
  4. Qualified Retirement Plan

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

    An individual retirement plan that bears many similarities to ...
  6. Cliff Vesting

    The process by which employees earn the right to receive full ...
Related Articles
  1. Retirement

    Who is eligible for a qualified retirement plan?

    Meeting eligibility requirements for a qualified retirement plan vary but generally dictate a minimum age and a the amount of time employed with the company.
  2. Retirement

    Is a 401(k) a qualified retirement plan?

    Examine the different types of qualified retirement plans, and discover if a 401(k) meets the definition of a qualified retirement plan.
  3. Retirement

    Are Roth 401(k) plans matched by employers?

    Discover the difference between a Roth 401(k) and a traditional 401(k), and explore the role of an employer contribution in both plans.
  4. Retirement

    Is an individual/independent 401(k) a qualified plan?

    Surpassing the SEP IRA plans previously popular with self-employed individuals, the individual 401(k) plan is a qualified retirement plan approved by the IRS.
  5. Retirement

    What is a 401(k) rollover?

    Find out what a 401(k) rollover is, when you might want to roll over a 401(k) and whether a direct or indirect rollover is right for you.
  6. Retirement

    How do you withdraw money from your 401(k)?

    Deciding to take a withdraw from your 401k is not a decision that should be made lightly. However, for those who needs funds, it is one option.
  7. Retirement

    What are the contribution limits of a 401(k) vs. a Roth 401(k)?

    Learn to choose correctly between a 401(k) and a Roth 401(k) retirement plan to maximize the amount of money available to you during retirement.
  8. Retirement

    What are qualified retirement plan types?

    Understand the different types of qualified retirement plans and what they mean in terms of employee and employer contribution and payment distribution.
  9. Retirement

    What are the main differences between a Roth 401(k) and a 401(k)?

    Learn more about financial planning, investment options and decision making between traditional 401(k) and Roth 401(k) accounts, and discover the best option.
  10. Retirement

    What happens to my 401(k) plan if I switch jobs?

    Roll over your old 401(k) plan to your new 401(k) plan or an IRA, cash it out, or leave it alone. Which option is right for you?

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center