Financial Advisor, Cona Financial Group, La Verne, CA
A 401(k) plan is a qualified "cash or deferred arrangement" permitted under section 401(k) of the Internal Revenue Code. Essentially, a 401(k) is a retirement plan sponsored by your employer that allows you to defer some of your income (subject to limits) into this plan. Some employers will provide matching contributions on top of your salary deferral which will help you to build retirement savings more quickly.
By deferring income into a 401(k) plan, you also defer paying taxes on that income. The investments inside of the plan grow on a tax-deferred basis, and you are responsible for taxes when you take the money out of the plan as income (during retirement).
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
What kind of retirement plan is a 401k? It is a defined contribution retirement plan. Created in the early 1980's as a supplement to traditional defined benefit retirement plans, 401k plans quickly went from supplemental to primary retirement plans in the USA. The performance good or bad in a 401k is almost entirely the responsibility of the employee. 401k plans represent a major shift in responsibility for plan outcomes to employees.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The Internal Revenue Code (IRC) allows employers to establish defined contribution pension plans under section 401(k) in these plans the assets are segregated into individual employee accounts. Often the employer will offer a range of investment options to the participant. The results of the account are dependent upon the investments selected. Some employers contribute to the plans, some do not.
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By deferring income into a 401(k) plan, you also defer paying taxes on that income. The investments inside of the plan grow on a tax-deferred basis, and you are responsible for taxes when you take the money out of the plan as income (during retirement).