401(k)

A 401(k) qualified plan established by employers to which eligible employees may make salary-deferral (salary-reduction) contributions on a post- and/or pre-tax basis. Employers may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

Caps placed by the plan and/or IRS regulations usually limit the percentage of salary-deferral contributions. There are restrictions also on how and when employees can withdraw these assets. Penalties may apply if the amount is withdrawn while he or she is under the retirement age as defined by the plan. Plans that allow participants to direct their own investments provide a core group of investment products from which participants may choose. Otherwise, professionals hired by the employer direct and manage the employees' investments.