A: Offering a 401(k) plan has basically become a necessity to attract and retain key talent. A 401(k) is a retirement plan that allows employees to make elective salary deferrals while avoiding current taxes on that portion of their incomes. Companies may also choose to make contributions, rewarding employees with a match or profit sharing contribution – these are generally tax deductible too, but not a requirement! The 401(k) plan has become the number one savings vehicle for Americans due to the automated savings feature, powerful tax deferred growth, ability to access funds in a pinch and high contribution limits.
Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59½ a 10% federal penalty tax may apply.