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 New Hampshire, 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 Taxes aren't paid until the money is withdrawn from the account.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 NH can choose to defer a portion of their salary into their 401(k), which means this amount won't be subject to income tax until it is withdrawn, typically at retirement. Employers may also contribute to the 401(k) accounts of their employees, which can be matched up to a certain percentage. These employer contributions can either be subject to vesting schedules or immediately vested. Withdrawals from 401(k) plans are taxed as ordinary income, and withdrawals made before age 59½ may be subject to an additional 10% early withdrawal penalty unless an exception applies. Roth 401(k) contributions are made with after-tax dollars, and qualified distributions from these accounts are tax-free. The specific rules and regulations governing 401(k) plans are established by federal law, particularly the Internal Revenue Code, and the Employee Retirement Income Security Act (ERISA). New Hampshire state law does not significantly alter these federal regulations but does provide protections for 401(k) assets against creditors in the case of bankruptcy.