408(k) Plan


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.

BREAKING DOWN '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 Throughout the account's lifetime, deposits are not treated as income until the funds are withdrawn.

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  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. Can a 401(k) be taken in bankruptcy?

    The two most common types of bankruptcy available to consumers are Chapter 7 and Chapter 13. Whether you file a Chapter 7 ... Read Full Answer >>
  3. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  4. 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 >>
  5. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  6. 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 >>

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