401 k plan

• Is a retirement plan that the employee can set aside a portion of his or her income. The actual dollar amount is subject to annual change. Benefits of the plan are that it affords portability, reduces the employee's annual gross income for tax purposes, and the employee's contributions are immediately vested. Balances are allowed to grow on a tax-free basis and there are provisions for employer contributions as well.

• A type of retirement savings plan, used by private firms or nonprofit employers. Also known as a cash-or-deferred.

• A tax-deferred defined contribution retirement plan offered by an employer.

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