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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 ?
Ja os fonemas alterados no sistema fonologico foram: fricativas > liquidas nao laterais > liquidas laterais > plosivas > nasais (onset simples); coda com /R/ > coda com /S/ > coda com /L/ > coda com /N/ (coda silabica); onset complexo com /l/ > onset complexo /r/ (onset complexo).
White & Case LLP, Emerald Capital Advisors, Houlihan Lokey are advising the company on the restructuring, while FCO MA CODA Holdings is being advised by Sidley Austin LLP.
Headquartered in Los Angeles, California, CODA Automotive is a privately-owned company that designs, manufactures and sells electric vehicles and lithium-ion battery systems.
Nicholas, "Nick", was born on July 11, 1949 in the Bronx, New York a son of Rose Coda and the late Frank Coda.
Occupying an intermediate driving range of 90 to 120 miles is the CODA sedan from Coda Automotive.
The Mo Ibrahim Foundation and the Coalition for Dialogue on Africa (CoDA) have jointly urged leaders from across Africa to make regional economic integration a priority in 2011.
Hertz The Hertz Corporation announced a joint partnership with CODA Automotive, a car manufacturer that specializes on all-electric vehicle to bring its new four-door, five-passenger all-electric CODA Sedans to Hertz's California locations in 2011 as part of the Hertz Global EV program.
Travel Business Review-November 23, 2010--Hertz to Partner CODA Automotive to Offer Electric Vehicle(C)2010] ENPublishing - http://www.enpublishing.co.uk