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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 Virginia, 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 Virginia 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 to a traditional 401(k) reduce an employee's taxable income in the year they are made, but distributions at retirement are taxed as income. In contrast, Roth 401(k) contributions are made with after-tax dollars and qualified distributions are tax-free. Employers in Virginia may also contribute to their employees' 401(k) accounts, often through matching contributions up to a certain percentage. These employer contributions can be subject to vesting schedules, which require employees to remain with the company for a certain period before gaining full ownership of the employer-contributed funds.

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Employment law

retirement plans—401k plans

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Virginia State Code

Virginia State Code

Employment law

retirement plans—401k plans

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