The most popular defined contribution plan today is the
401(k) plan. More formally called a cash or deferred arrangement (CODA), the 401(k) is simply a feature added to a profit sharing plan that, as described in Section 401(k) of the Internal Revenue Code, allows plan participants to elect to defer a portion of their income to a qualified retirement plan on a pre-tax basis. The employer has considerable flexibility in its contribution commitment, though most plans include a matching-dollar contribution provision.
Besides being attractive to employers, the 401(k) is popular with employees for a variety of reasons, including:
Businessowners can elect to make matching tax-deductible contributions on behalf of participating employees. Depending on the type of 401(k) plan design adopted, employer contributions may be discretionary or required.
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