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 California, as in other states, a 401(k) plan is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account. Employees can choose to defer a portion of their salary into their 401(k), and these elective deferrals are excluded from their taxable income, with the exception of contributions to a Roth 401(k), which are taxed upfront but may be withdrawn tax-free in retirement. Employers have the option to make contributions to their employees' 401(k) accounts, which can be matched up to a certain percentage. Upon retirement, or when the employee takes distributions from the plan, the funds, including any earnings, are subject to income tax, except for qualified distributions from Roth accounts. The specific rules and regulations governing 401(k) plans are primarily established under federal law, particularly the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, while California law generally conforms to federal law in this area.