What is a 401(k) plan?

A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts.

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• Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals).

• Employers can contribute to employees’ accounts.

• Distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).

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With a small business 401(k), you (and your employees, if you have them) can save for retirement while lowering your taxable income. Contributions you and your employees make to a 401(k) plan are contributed on a pre-tax basis. In the short term, that translates to a smaller tax bite on your annual salary. In the long run, it means extra security as your investments grow tax-free until you’re ready to retire.

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