A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Some of the key features of 401k plans are:

• Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals).

• Employers can contribute to employees’ accounts.

• Distributions—including earnings—are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).

In Arizona, as in all states, a 401(k) plan is a retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out. The contributions made by employees towards a 401(k) are not taxed until the employee withdraws that money, typically after retirement. Employers may also contribute to the 401(k) accounts of their employees, which can be in the form of a match or other contribution. The earnings in a 401(k) plan are not taxed until the employee takes a distribution, which is usually during retirement when the employee may be in a lower tax bracket. If the 401(k) plan includes a Roth option, qualified distributions from the Roth account are tax-free. The specific rules and regulations governing 401(k) plans are established by federal law under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, and the Arizona state law does not significantly alter these federal regulations.