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are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan.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. What is a 401(k) rollover?
    Retirement

    What is a 401(k) rollover?

  2. How do you withdraw money from your ...
    Retirement

    How do you withdraw money from your ...

  3. What are the contribution limits of ...
    Retirement

    What are the contribution limits of ...

  4. What are qualified retirement plan types?
    Retirement

    What are qualified retirement plan types?

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center