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 Nebraska, 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 their 401(k) are not taxed until the employee withdraws that money, typically after retirement. Employers may also make matching or non-elective contributions to the plan on behalf of eligible employees, and these contributions can be subject to a vesting schedule. Distributions from a traditional 401(k) plan are taxed as ordinary income when the employee retires or takes a distribution. In the case of a Roth 401(k), contributions are made with after-tax dollars, and qualified distributions during retirement are generally 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. Nebraska state law does not significantly alter these federal regulations but does follow the federal tax treatment for such plans.