Traditional 401(k)

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Traditional 401(k)

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) per year into a 401(k), and some employers have matching contributions.
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References in periodicals archive ?
"One of the most under-utilized plans is the solo 401k, but it's great for businesses that have a big year or an income far above the SEP limits." While the traditional 401k only allows for $18,000 in tax-qualified contributions per year, the one-participant, or "solo" 401k allows for an additional 25 percent of net self-employed earnings.
Chicago, IL, October 31, 2014 --(PR.com)-- AlgoTrades has selected the nation's premier self-directed IRA administer - Advanta IRA as the primary firm to handle IRA, ROTH IRA, and traditional 401K accounts for their automatic investing system.
A key difference between a one-participant 401(k) and the more familiar SEP is the allowable contribution amount As with a traditional 401k) plan, a sole proprietor can make both a salary deferral as the employee and a company contribution as the employer, thus maximizing tax deferrals while simultaneously increasing retirement savings.
"The entire account is never taxed, which it is in the traditional 401k, upon distribution."