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 Throughout the account's lifetime, deposits are not treated as income until the funds are withdrawn.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. I'm in my 50s. Should I still participate in my company's Roth 401(k)?

    Participating in an employer-sponsored Roth 401(k) program is an excellent way to plan for retirement at any age. The longer ... Read Full Answer >>
  3. What happens to my Roth 401(k) if I leave my job?

    A Roth 401(k) works like a traditional 401(k) plan, in that contributions are made through paycheck deferrals and assets ... Read Full Answer >>
  4. What are the tax advantages of a Roth 401(k) over an IRA or traditional 401(k)?

    Roth 401(k) dollars are essentially subject to the same income tax rules as Roth IRA. Funds already held within a Roth 4 ... Read Full Answer >>
  5. How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and ... Read Full Answer >>
  6. How much can I contribute to my Roth 401(k)?

    The maximum amount that a person can contribute to his Roth 401(k) for the calendar year 2015 is $18,000, or $24,000 for ... Read Full Answer >>
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