(redirected from 401k)


A retirement investment plan in which a contributor defers taxation on contributions until after withdrawal. Under a traditional 401(k), a worker places a portion of his/her pre-tax income into a 401(k) account and allows it to be invested. Taxation is deferred until withdrawal from the account, generally after retirement. Withdrawals prior to the age of 59 1/2 are subject to excise taxes, but the investor must begin disbursements before the age of 70 1/2, unless he/she is still employed with the company offering the 401(k). Most employees are allowed to place up to $16,500 (in 2009) into a 401(k), and some employers have matching contributions.

In 2006, the U.S. Government instituted the Roth 401(k), which allows post-tax contributions in return for tax-free withdrawals after retirement. This gave retirement investors a wider range of choice based upon their specific needs.

Most 401(k)s are employee benefits and workers must have a sponsoring employer to take advantage of one. However, a self-employed person may also set up a 401(k) for himself/herself.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


You participate in a 401(k) retirement savings plan by deferring part of your salary into an account set up in your name. Any earnings in the account are federal income tax deferred.

If you change jobs, 401(k) plans are portable, which means that you can move your accumulated assets to a new employer's plan, if the plan allows transfers, or to a rollover IRA.

With a traditional 401(k), you defer pretax income, which reduces the income tax you owe in the year you made the contribution. You pay tax on all withdrawals at your regular rate.

With the newer Roth 401(k), which is offered in some but not all plans, you contribute after-tax income. Earnings accumulate tax deferred, but your withdrawals are completely tax free if your account has been open at least five years and you're at least 59 1/2.

In either type of 401(k), you can defer up to the federal cap, plus an annual catch-up contribution if you're 50 or older.

However, you may be able to contribute less than the cap if you're a highly compensated employee or if your employer limits contributions to a percentage of your salary. Your employer may match some or all of your contributions, based on the terms of the plan you participate in, but matching isn't required.

With a 401(k), you are responsible for making your own investment decisions by choosing from among investment alternatives offered by the plan. Those alternatives typically include separate accounts, mutual funds, annuities, fixed-income investments, and sometimes company stock.

You may owe an additional 10% federal tax penalty if you withdraw from a 401(k) before you reach 59 1/2. You must begin to take minimum required distributions by April 1 of the year following the year you turn 70 1/2 unless you're still working. But if you prefer, you can roll over your traditional 401(k) assets into a traditional IRA and your Roth 401(k) assets into a Roth IRA.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
It was in that role that he had "unsupervised control over the practice's human resources functions, including payroll, 401K administration, and the hiring support staff" according to a press release from the DA's office.
Perks: 401k match, free library and book club, results-only working environment (ROWE), shared corporate ski passes, shared Top Golf passes, onsite gym and showers, parental leave, unlimited vacation, and UTA passes.
Rowe Price (TROW) are battling class-action suits related to fund selection and oversight of their 401k plans, and they are not alone as more than 128 cases have been filed since 2016, including Charles Schwab (SCHW), M&T Bank (MTB), Morgan Stanley (MS), Neuberger Berman, and JPMorgan (JPM), Daren Fonda writes in this week's edition of Barron's.
This alliance will provide more educational & training opportunities, ASA enrollment in CompTrustAGC workers compensation program and the AGC ASA 401k Mufti Employer Plan.
M2 EQUITYBITES-August 2, 2018-Ascensus to Acquire Third-Party Administrator 401k Plus
The most important such response was the creation of so-called 401k accounts, which allow employers to contribute funds to retirement accounts for their employees.
Area financial planners and advisers say clients often make the mistake of not saving enough or not having enough assets to retire, not knowing where their assets are invested and not consolidating multiple 401k's from the various companies they have worked for over the years.
Marini, a financial adviser and leading expert in 401(k) plans, writes new rules of the road for how employees can resolve a sub-par, high-fee 401k offering by their employer.
BANKING AND CREDIT NEWS-February 22, 2017-BrightScope lists 7 new companies in Top 30 401k Plans list this year
Capital One (NYSE:COF) has said that it has launched Spark 401k, which provides low-cost, all-ETF 401(k) plans, allowing business owners and their employees to invest for the future.
Eight years out, a new study shows that the 2008 economic meltdown has had lasting impacts on the savings accounts of primarily black and Hispanic households in the U.S. In the near decade since Lehman Brothers collapsed, signaling the start of downward economic spiral, the balances of minority 401K accounts have dropped while white future retirees have seen little change in theirs.