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Employment law

retirement plans—401k plans

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 Tennessee, as in all states, 401(k) plans are governed by federal law, specifically the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Employees in Tennessee can contribute a portion of their wages to their 401(k) accounts before taxes are deducted (traditional 401(k)) or after taxes (Roth 401(k)), which affects their taxable income. Contributions made by employers can also be part of the 401(k) plan, often in the form of matching contributions up to a certain percentage. Upon retirement, the money withdrawn from a traditional 401(k) account is taxed as ordinary income, while qualified distributions from a Roth 401(k) are generally tax-free. It's important to note that while the state of Tennessee does not have a state income tax on wages, distributions from 401(k) plans may still be subject to federal income tax.

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Employment law

retirement plans—401k plans

Individual & Family Legal Plan

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Tennessee State Code

Tennessee State Code

Employment law

retirement plans—401k plans

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