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401(k) |
A 401(k) Plan
is a defined
contribution
plan that is
a cash or deferred
arrangement.
Employees can
elect to defer
receiving a
portion of their
salary which
is instead contributed
on their behalf,
before taxes,
to the 401(k)
plan. Sometimes
the employer
may match these
contributions.
There are special
rules governing
the operation
of a 401(k)
plan. For example,
there is a dollar
limit on the
amount an employee
may elect to
defer each year.
An employer
must advise
employees of
any limits that
may apply. Employees
who participate
in 401(k) plans
assume responsibility
for their retirement
income by contributing
part of their
salary and,
in many instances,
by directing
their own investments.
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