Business Terms Glossary

401(K) Plan

Definition of 401(K) Plan

A 401(K) Plan is a qualified retirement plan that allows employees to make pre-tax contributions. These plans are governed by Section 401(k) of the Internal Revenue Code.

Employee contributions reduce their salary but the money is available to the employee when they retire and, subject to some restrictions, there is no tax on any interest earned.

In many cases, the employer will match employee contributions up to a specified level. Offering a 401(K) plan is a valued employee benefit that helps small business owners recruit and retain talented employees.

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