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 Mississippi, 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 to a 401(k) plan, except for those made to a designated Roth account within the 401(k), are not included in the employee's taxable income for federal and state income tax purposes. 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 on investments, become taxable. Qualified distributions from a designated Roth account within the 401(k) are generally tax-free, provided certain conditions are met. The specific rules and regulations governing 401(k) plans are primarily established by federal law under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Mississippi state law does not significantly alter these federal regulations but does follow the federal tax treatment for these retirement plans.