A 401(k) plan is a tax-advantaged retirement savings plan that is sponsored by employers for their employees. It is named after the section of the U.S. Internal Revenue Code that governs it. Here are the key features of a 401(k) plan:

### 1. **Employee Contributions:**

– **Pre-Tax Contributions:**
– Employees can make contributions to their 401(k) accounts on a pre-tax basis, meaning the contributions are deducted from their gross income before taxes are applied. This reduces their taxable income for the year.

– **Contribution Limits:**
– The IRS sets annual limits on the amount employees can contribute to their 401(k) accounts. These limits are subject to change and should be checked regularly. There are also catch-up contributions allowed for individuals age 50 and older.

### 2. **Employer Contributions:**

– **Employer Match:**
– Many employers offer a matching contribution to the 401(k) plan. This means that the employer matches a certain percentage of the employee’s contributions, up to a specified limit. The employer match is essentially free money that helps boost the employee’s retirement savings.

– **Profit Sharing:**
– Some employers may contribute to employees’ 401(k) accounts through profit-sharing contributions. These contributions are not necessarily tied to employee contributions and are made at the employer’s discretion.

### 3. **Tax Advantages:**

– **Tax-Deferred Growth:**
– The contributions and any investment gains in a 401(k) account grow on a tax-deferred basis. Taxes on contributions and earnings are deferred until the employee makes withdrawals in retirement.

### 4. **Withdrawal Rules:**

– **Distribution Age:**
– Withdrawals from a 401(k) plan are generally allowed penalty-free after the age of 59½. However, withdrawals made before this age may be subject to a 10% early withdrawal penalty, in addition to regular income taxes.

– **Required Minimum Distributions (RMDs):**
– Starting at age 72 (or 70½ for those who reached 70½ before January 1, 2020), account holders are required to take minimum distributions from their 401(k) accounts each year. This is known as a Required Minimum Distribution (RMD).

### 5. **Investment Options:**

– **Investment Choices:**
– 401(k) participants typically have a range of investment options to choose from. These may include mutual funds, index funds, target-date funds, and other investment vehicles.

### 6. **Portability:**

– **Job Changes:**
– When employees change jobs, they often have the option to roll over their 401(k) account into an Individual Retirement Account (IRA) or into the 401(k) plan of their new employer.

### 7. **Loans and Hardship Withdrawals:**

– **Loan Options:**
– Some 401(k) plans allow participants to take loans from their account, allowing them to borrow a portion of their vested account balance. Loan terms and conditions are specified in the plan documents.

– **Hardship Withdrawals:**
– In certain situations, participants may be allowed to take hardship withdrawals, though these are subject to specific criteria and taxes.

### 8. **Plan Management:**

– **Plan Administrator:**
– The employer typically designates a plan administrator to oversee the 401(k) plan and ensure compliance with regulatory requirements.

– **Employee Education:**
– Employers often provide educational resources to help employees understand the features of the 401(k) plan and make informed investment decisions.

It’s important for employees to review the specifics of their employer’s 401(k) plan and to make choices that align with their financial goals and retirement objectives. Financial advice from a professional advisor can be beneficial in making strategic decisions about retirement savings.