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 Wisconsin, 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 feature of the 401(k) plan, which can lead to significant tax savings. Employers may also contribute to the 401(k) plans, which can be either matching the employee's contribution up to a certain percentage or a non-elective contribution. The state of Wisconsin follows the federal guidelines for 401(k) plans, which are primarily governed by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Distributions from 401(k) plans are subject to income tax at the time of withdrawal. However, qualified distributions from a designated Roth 401(k) account are generally tax-free, provided certain conditions are met.