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 West Virginia, 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 traditional 401(k) are typically tax-deferred, meaning they reduce the employee's taxable income. However, Roth 401(k) contributions are made with after-tax dollars, and qualified distributions from a Roth account are tax-free. Employers may also make contributions to the employees' 401(k) accounts, which can be in the form of a match or non-elective contributions. Upon retirement, or when the employee takes distributions from the plan, the funds from a traditional 401(k) account, including earnings, are subject to income tax. The specific rules and regulations governing 401(k) plans are established by federal law, particularly under the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). West Virginia does not have specific state statutes that alter the federal framework for 401(k) plans.