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 Kentucky, 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. The contributions made by employees towards a 401(k) are not taxed until the employee withdraws that money, typically after retirement. This tax deferral is the primary tax benefit of a 401(k) plan. Employers may also contribute to the plan by matching a portion of the employee's contributions or by making non-elective contributions. The state of Kentucky follows the federal guidelines for 401(k) plans, which are established under the Employee Retirement Income Security Act (ERISA) and regulated by the Internal Revenue Service (IRS). Upon retirement or when taking distributions, the money from a traditional 401(k) plan is taxed as ordinary income. Roth 401(k) contributions are made with after-tax dollars, and qualified distributions are tax-free. It's important to note that early withdrawals may be subject to penalties and additional taxes. An attorney specializing in tax law or employee benefits can provide more detailed information about 401(k) plans and their tax implications in Kentucky.