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 Oregon, 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. This deferral of taxes is a key advantage of the 401(k) plan. Employers may also contribute to the plan by matching a portion of the employee's contributions or by making non-elective contributions. The earnings in a 401(k) plan are also tax-deferred. When an employee eventually takes distributions from the plan in retirement, those distributions are taxed as ordinary income. However, if the 401(k) includes a designated Roth account, qualified distributions from that account 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. Oregon does not have specific statutes that alter the federal framework for 401(k) plans.