What is a 401(k) plan?


Quick Answer

A 401k plan allows employees to contribute portions of their wages to their respective individual accounts for the purpose of retirement planning. Employees work with their employers to invest in several types of 401k plans.

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Full Answer

Aside from traditional 401k plans, another type includes SIMPLE plans. These provide small businesses the opportunity to assist their employees in retirement planning by relieving them of the non-discrimination tests subject to traditional plans. There are also other employer requirements, dependent upon the rules of each plan, such as matching contributions. Additionally, employees are able to gain tax deferral on their contributions, until distributions of funds begin.

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