Small Business Dictionary

401(k) Plan

A 401(k) Plan is a qualified U.S. retirement plan that allows an employee to make pre-tax contributions as a percentage of earned wages into a tax-deferred investment account selected by the employer. A 401(k) Plan's contributions, governed by Section 401(k) of the Internal Revenue Code, may include matching funds by the employer and are not subject to federal income tax, and most state income taxes, until withdrawn.