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 Rhode Island, 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 Taxes aren't paid until the money is withdrawn from the account.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 Rhode Island can choose to defer a portion of their salary into their 401(k), which reduces their taxable income for the year. These deferrals are subject to annual limits set by the federal government. Employers may also make contributions to their employees' 401(k) accounts, which can be matched up to a certain percentage. Upon retirement, or when the employee is eligible to take distributions, the funds from the 401(k) account, including any earnings, are subject to income tax. However, qualified distributions from a designated Roth 401(k) account are generally tax-free. The regulation of 401(k) plans in Rhode Island is consistent with federal law, primarily governed by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.