408(k) Plan

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DEFINITION of '408(k) Plan'

A plan set up by an employer to help employees fund their retirement. The 408(k) plan is a simplified version of the popular 401(k) plan but is intended for smaller companies (those with fewer than 25 employees). It is also available to self-employed individuals. Under the plan, employees can contribute pretax dollars to the account and thus reduce their net incomes for the year. This results in a tax savings for the contributor.

INVESTOPEDIA EXPLAINS '408(k) Plan'

Although the term 408(k) is often used to describe an account, it actually refers to the Internal Revenue Code, which details Simplified Employee Pension (SEP) accounts. The employee and the employer contribute to this account in the employee's name. Throughout the account's lifetime, deposits are not treated as income until the funds are withdrawn.

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RELATED FAQS
  1. Is a 408 (k) the same as a Simplified Employee Pension (SEP)?

    A 408 (k) is not the same as a Simplified Employee Pension (SEP). The SEP plan is a retirement plan that allows employers ... Read Full Answer >>
  2. 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 >>
  3. How can an entrepreneur save for retirement?

    One of the benefits many companies offer their employees is the opportunity to contribute to some form of retirement savings ... Read Full Answer >>
  4. Under what circumstances will a contingent beneficiary receive an insurance payout?

    A contingent beneficiary is someone who receives the proceeds of an insurance policy if the person named as the primary beneficiary ... Read Full Answer >>
  5. When is an expense ratio considered high and when is it considered low?

    A number of factors determine when an expense ratio is relatively high or low, but a good, low expense ratio is generally ... Read Full Answer >>
  6. How does a defined benefit pension plan differ from a defined contribution plan?

    Employer-sponsored retirement plans are divided into two categories of plans: defined benefit pension plans and defined contribution ... Read Full Answer >>
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