401 (k) Plan

401(k) Plan Definition (in the Accounting Vocabulary)

The New York State Society of Certified Public Accountants offers the following definition of 401(k) Plan in a way that is easy for anybody to understand: Employee benefit plan authorized by Internal Revenue Code section 401(k), whereby sk dfxan employer establishes an account for each participating employee and each participant elects to deposit a portion of his or her salary into the account. The amount deposited is not subject to income tax. This is the most common type of salary reduction plans.

United States Tax Concept of 401(k) Plan

A 401(k) Plan is a tax deferred savings plan which is authorized by section 401(k) of the Internal Revenue Code. Under Section 401(k) a percentage of your salary is withheld and placed in a savings account or the company’s profit-sharing plan. Your employer may match a percentage of the amount you have withheld. You are not taxed on the amount deducted from your pay, your employer’s matching amount, or any interest or gains until you receive distributions, usually at retirement. Most plans allow employees to borrow from their accounts.