A 401(k) retirement savings plan allows a worker to save for retirement and have the savings invested while deferring current income taxes on the saved money and earnings until withdrawal. 401(k) plans are mainly employer-sponsored. Employees are given the option to elect to have a portion of their wages paid directly into their individual 401(k) account. The account is then managed by a firm chosen by the the employer.

As a benefit to the employee, the employer can optionally choose to "match" part or all of the employee's contribution by depositing additional amounts in the employee's 401(k) account or simply offering a profit-sharing contribution to the plan. However, these employer "matches" are included as wages and are subject to social security, Medicare, and federal unemployment taxes.

The amount that an employee may elect to defer to a 401(k) plan is limited by the Internal Revenue Code. In addition, your elective contributions may be limited based on the terms of your 401(k) plan. Distributions from a 401(k) plan may qualify for optional lump-sum distribution treatment or rollover treatment as long as they meet the respective requirements. Distributions received before age 59 1/2 are subject to an early distribution penalty unless an exception applies.

For more information, meet with Jeff at Richard Financial Resources, LLC. He will be happy to educate you on 401(k)s.