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What is a 401(k)? A 401(k) savings plan is a tax-deferred investment and savings plan that acts as a personal pension fund for employees. (The name refers to the relevant section in the tax code.) This plan allows you to defer taxes on a portion of your salary until you retire. Taxes on investment gains are deferred until you withdraw money from the plan. Unlike pensions, 401(k) accounts are portable in that you can "roll over" the account, take it with you and continue building it at your next employer with no penalty. What does the term "pre-tax" mean? When you contribute to your 401(k) account, money gets invested before federal and most state income taxes are calculated. That means you are being taxed on less money than you've actually earned. Your money goes to work for you and continues to grow, earning interest and capital gains on a tax-deferred basis. Of course, when you reach your retirement years and start withdrawing money from your 401(k) account, you will pay regular income taxes on the contributions and earnings you withdraw. What is a Summary Plan Description? A Summary Plan Description (SPD) describes the provisions of the plan as well as the participants' rights under the plan. The SPD must be written in a style and format that is understandable to the average participant. The SPD is available for you to read, please contact the trustee of your plan for this document.
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