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Employment law

retirement plans—401k plans

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 Mexico, 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 a 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, while qualified distributions from a Roth 401(k) 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, rather than state law. Therefore, the operation of 401(k) plans in New Mexico is consistent with federal guidelines.

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Employment law

retirement plans—401k plans

Individual & Family Legal Plan

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New-Mexico State Code

New-Mexico State Code

Employment law

retirement plans—401k plans

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