401k Plans
A 401(k) is an employer-sponsored savings program for employees. Eligible employees may elect to make either regular pre-tax or regular post-tax contributions to the program. This program is made possible by Section 401(k) of the Internal Revenue Code.
- Defined contribution plan - Each payday, through automatic payroll deduction, 401(k) participants contribute a defined amount of their pay to their individual accounts.
- Tax-deferred contributions - The 401(k) contribution is deducted from an employee's gross pay before income taxes are calculated and withheld. Taxes are deferred until the money is withdrawn from the plan.
- Investment choice - Participants specify how their savings will be invested, selecting from an array of investment options chosen by the plan administrator with varying degrees of risk and potential return.
- Employer matching contributions - The sponsoring company may elect to contribute to its employees' accounts by matching a portion of employee contributions. Any contributions that the company makes to the 401(k) are tax-deductible.*
A 401(k) plan is a highly visible benefit that continues to gain popularity among employees. At the same time, its tax advantages make it a low-cost enhancement to any employee benefits package.
A 401(k) adds to the company's success in many ways:
- Company expenses and contributions to the 401(k) plan are tax-deductible, up to defined IRC limits.
- A 401(k) helps to attract and retain top-notch employees in every age group.
- By implementing a 401(k) savings plan, the company reduces the need for other types of retirement programs.
401(k) plans are appealing for employees due to the tax advantages and financial security they offer:
- Tax savings
- Tax-deferred earnings
- Convenience of automatic payroll deductions
- Flexibility and control over investments
- Portability
- Employer matching contributions
There are contribution limitations as set by federal regulations as well as non-discrimination requirements and annual federal filings.
*The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
