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are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan.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

    1. The transfer of qualified retirement plan distributions into ...
  3. Roth 401(k)

    An employer-sponsored investment savings account that is funded ...
  4. SBO-401(k)

    A tax-deferred, government-registered retirement savings plan ...
  5. Independent 401(k)

    A 401(k) plan set up for an individual running a sole proprietorship ...
  6. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
Related Articles
  1. Who is eligible for a qualified retirement ...
    Retirement

    Who is eligible for a qualified retirement ...

  2. Is a 401(k) a qualified retirement plan?
    Retirement

    Is a 401(k) a qualified retirement plan?

  3. Are Roth 401(k) plans matched by employers?
    Retirement

    Are Roth 401(k) plans matched by employers?

  4. Is an individual/independent 401(k) ...
    Retirement

    Is an individual/independent 401(k) ...

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center