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 Throughout the account's lifetime, deposits are not treated as income until the funds are withdrawn.

  1. Employee Contribution Plan

    An employee contribution plan is an employer-sponsored savings ...
  2. Qualified Retirement Plan

    A qualified retirement plan meets the requirements of Internal ...
  3. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
  4. Accrued Benefits

    Accrued benefits are those benefits earned or accumulated by ...
  5. Defined-Benefit Plan

    A defined-benefit plan is an employer-sponsored retirement plan ...
  6. Withdrawal Credits, Pension Plan

    The rights of an employee who has a qualified pension plan to ...
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  1. How do I set up a 408(k) plan in my business?

    Understand the necessary steps for setting up a 408(k) retirement plan, and get an overview of the SEP and SIMPLE plan options ... Read Answer >>
  2. Is a 408 (k) the same as a Simplified Employee Pension (SEP)?

    Find out the differences and the similarities between a 408(k) retirement plan and a simplified employee pension (SEP), and ... Read Answer >>
  3. How can an entrepreneur save for retirement?

    Learn about the retirement savings plan options for entrepreneurs and small business owners, including administration and ... Read Answer >>
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