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 Massachusetts, 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 Taxes aren't paid until the money is withdrawn from the account.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 in MA can choose to defer a portion of their salary into their 401(k), which is then excluded from their taxable income in the year of the deferral, with the exception of contributions to a Roth 401(k), which are taxed upfront but may be withdrawn tax-free in retirement.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 distributions are taken, the money, including any earnings on investments, is subject to federal and state income taxes, unless it comes from a Roth account and meets the criteria for a qualified distribution. The specific rules and limits for contributions, distributions, and employer matching are governed by federal law under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, with the Internal Revenue Service (IRS) providing annual guidelines on contribution limits.