401(k)

By Entrepreneur Staff

Pencil

401(k) Definition:

A retirement plan for employees that allows them to put part oftheir pre-tax salary in an account. The funds may not be withdrawnuntil employees retire without paying a penalty.

401(k) plans take their name from the section of the federal tax code that provides for them. These plans let employees set aside a percentage of salary tax-free every year. As a kicker, the funds grow tax-free until they are withdrawn. 401(k) plans are very popular benefits with employees because they allow employers to essentially pay workers more without that income being taxed. 401(k) plans are quite popular with employers because most of the contribution comes from the employees and not the company.

The Employee Retirement Income Security Act of 1974 (ERISA) governs the way 401(k) plans are set up and managed. There are many responsibilities that go along with setting up a 401(k) plan. For instance, employers must determine the investment options employees will get to choose from and monitor the investments' performance as well as the service provided by whomever is administering the plan. ERISA exists to make sure any fees charged for the plan are "reasonable."

You can learn more about 401(k) plans at the Department of Labor's Pension and Welfare Benefits Administration website.

More from Startup Financing

401(k)

A retirement plan for employees that allows them to put part oftheir pre-tax salary in an account. The funds may not be withdrawnuntil employees retire without paying a penalty.

See full definition

7(a) Loan Guaranty Program

The most basic and most popular of the SBA's loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the agency to provide business loans to American small businesses.

See full definition

Compound Interest

Interest computed on the sum of the principle and the accrued interest

See full definition

Equipment Leasing

Obtaining the use of machinery, vehicles or other equipment on a rental basis. This avoids the need to invest capital in equipment. Ownership rests in the hands of the financial institution or leasing company, while the business has the actual use of it.

See full definition

Latest Articles

Business Solutions

Right Now, You Can Get More Than 310 Hours of IT Training for Just $50

Stay ahead in tech with the CompTIA Super Bundle.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

These Companies Offer the Best Work-Life Balance, According to Employees

The ranking is based on Glassdoor ratings and reviews.