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 Maryland, as in other states, a 401(k) plan is a retirement savings plan sponsored by an employer that allows employees to save and invest a portion 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. Employers may also contribute to the plan by matching a certain percentage of the employee's contributions or by making non-elective contributions. The earnings in a 401(k) plan are not taxed until the employee takes a distribution, which is usually during retirement when the employee may be in a lower tax bracket. For Roth 401(k) contributions, the deferrals are made with after-tax dollars, and qualified distributions during retirement are tax-free. The specific rules and regulations governing 401(k) plans are established by federal law under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, and the Maryland state law does not significantly alter these federal provisions.