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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 Vermont, 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 to a 401(k) plan are not taxed by the federal government or the state at the time of investment, which means they reduce the amount of income tax that an employee pays each year. These tax benefits are designed to encourage employees to save for retirement. Employers may also contribute to the plan, which can be either matching the employee's contribution up to a certain percentage or a non-elective contribution. Upon retirement, the money from the 401(k) plan is taxed as ordinary income. It's important to note that early withdrawals may be subject to penalties and additional taxes. Vermont follows federal guidelines for 401(k) plans, and there are no specific state statutes that alter the federal 401(k) regulations.

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Employment law

retirement plans—401k plans

Individual & Family Legal Plan

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Vermont State Code

Vermont State Code

Employment law

retirement plans—401k plans

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