401(k) plan

Definition

A deferred compensation retirement plan in which an employer withholds a portion of an employee's pretax wages and invests them in a qualified plan; an employer may contribute to an employee's 401(k) plan, e.g. by matching an employee's contributions. Wages invested in a 401(k) plan and income earned therefrom are not taxed until the employee withdraws them from the plan. A 401(k) plan may allow an employee to make a hardship withdrawal, but a distribution received before age 59.5 is generally subject to a 10% early distribution penalty.

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