A 401k is a qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax deferred basis. Only an employer is allowed to sponsor a 401k for their employees.
A traditional 401(k) Plan is a defined contribution plan
A traditional 401(k) Plan is a defined contribution plan which:
- Allows Employees to make elective deferrals through payroll deductions and direct the investment of their contributions.
- Employee contributions are always 100% vested and can be made in the form of pre-tax or ROTH contributions, regardless of their income limit.
- A match or a profit sharing feature may be added to the plan and may be subject to a vesting schedule for the company portion of the account.
- The Employer may limit eligibility for the plan.