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 South Carolina, as in all states, 401(k) plans are governed by federal law, specifically the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Employees in SC can elect to defer a portion of their salary into their 401(k) accounts, which reduces their taxable income for the year, except for contributions to Roth 401(k)s, which are made with after-tax dollars. Employers have the option to make contributions to their employees' 401(k) accounts, which can be in the form of matching contributions, non-elective contributions, or profit-sharing contributions. Upon retirement or when taking distributions, the money withdrawn from a traditional 401(k) account, including any earnings, is subject to income tax. However, qualified distributions from a Roth 401(k) are tax-free, as taxes have already been paid on the contributions. It's important to note that while the state of South Carolina does not have specific laws governing 401(k) plans, state tax treatment of these plans follows federal guidelines.