401(k) is the best known section of the Internal Revenue Code. And with good reason; never before have employees had such flexibility coupled with a tax advantaged way to save for retirement. Since their introduction, 401(k) plans have become the most popular among the qualified plans.
A 401(k) plan is again a special form of profit sharing plan.
In a 401(k) plan, employees elect to defer part of their earnings which are then deposited into a 401(k) account. Such deferrals reduce the taxable income of the employee for income tax purposes. (But are still subject to Social Security, Medicare and FICA taxes.)