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What is a 401(k)?

Many of us have access to a 401(k) plan at our workplace – have you ever wondered exactly what a 401(k) is? The 401(k) plan is named for a specific section in the Internal Revenue Code – Section 401, subsection k, to be exact.  This code section lays out the rules for these retirement plans, which are employer-sponsored plans providing a method for the worker or employee to defer a certain amount of income into a savings plan on a pre-tax basis. Often the employer also includes a matching contribution to the employee’s account.  These matches are typically based upon the amount of contribution that the employee makes to the plan – such as a dollar-for-dollar match for contributions made by the employee up to certain percentage of the employee’s income.  The deferred income is not subject to ordinary income tax, but it is still subject to FICA (Social Security) […]