What is a 401(k) plan? A 401(k) plan is a retirement savings plan designed to allow eligible employees to
supplement any existing retirement and pension benefits by saving and investing your
taxadvantaged dollars through voluntary salary deferral. You may select from pre-tax
and after-tax (Roth 401(k)) deferral options. Pre-tax contributions and any earnings
on contributions are tax-deferred until money is withdrawn. Distributions are usually
taken during retirement, when many participants are typically receiving less income
and may be in a lower income tax bracket than while working. Distributions from pre-tax
contributions are subject to ordinary income tax. If taken before you reach age 59½,
distributions may be subject to an additional 10% federal early withdrawal tax.
What is a Roth 401(k) contribution? A Roth 401(k) contribution is an option under the 401(k) plan that allows eligible
employees to supplement any existing retirement and pension benefits by saving and
investing after-tax dollars through voluntary salary deferral. Contributions and any
potential earnings can be distributed on a tax-free basis after you have reached age
59½ and after the required five-year holding period has passed. You have to designate
all or a portion of your 401(k) elective deferrals as Roth contributions.