What is a 401(k)?

A 401(k) plan is a special type of profit sharing plan and is named after the subsection of the Internal Revenue Code that describes it. A traditional 401(k) plan allows you to direct some of your compensation into the plan and you do not have to pay income taxes on the portion of your salary you direct into the plan until the funds are withdrawn.

What is a Qualified Plan?

A qualified plan is a type of retirement savings plan that an employer establishes for its employees that conforms to the requirements of Section 401 of the Internal Revenue Code. It is called a “qualified plan” because it meets all the requirements of Section 401 and, thus, qualifies for special tax rules, the most significant of which is that contributions the employer makes to the plan on behalf of its employees are tax deductible. The advantages to the employee working for an employer with a qualified plan are not only the opportunity to accumulate a retirement nest egg, but also to postpone paying income tax on the money contributed to the plan.