A 401(k) is a type of retirement savings account in the United States, which takes its name from subsection 401(k) of the Internal Revenue Code (Title 26 of the United States Code). A contributor can begin to withdraw funds after reaching the age of 59 1/2 years. 401(k)s were first widely adopted as retirement plans for American workers, beginning in the 1980s. The 401(k) emerged as an alternative to the traditional retirement pension, which was paid by employers. Employer contributions with the 401(k) can vary, but in general the 401(k) had the effect of shifting the burden for retirement savings to workers themselves. In 2011, about 60% of American households nearing retirement age have 401(k)-type accounts .
Employers can help their employees save for retirement while reducing taxable income under this provision, and workers can choose to deposit part of their earnings into a 401(k) account and not pay income tax on it until the money is later withdrawn in retirement. Interest earned on money in a 401(k) account is never taxed before funds are withdrawn. Employers may choose to, and often do, match contributions that workers make. The 401(k) account is typically administered by the employer, while in the usual "participant-directed" plan, the employee may select from different kinds of investment options. Employees choose where their savings will be invested, usually, between a selection of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.
The Tennessee Enrollment and Salary Deferral Agreement is a legal contract that outlines the terms and conditions for employees to enroll in deferred compensation plans offered by the state of Tennessee. This agreement allows employees to defer a portion of their salary to be collected at a future date, typically post-retirement. By participating in this program, employees can strategically plan their retirement income and enjoy potential tax advantages. The Tennessee Enrollment and Salary Deferral Agreement offers various types of deferred compensation plans tailored to employees' needs. These include: 1. 401(k) Plan: This type of plan allows employees to contribute a percentage of their pre-tax salary, which is invested over time in a variety of investment options. The contributions and any potential earnings are not taxed until withdrawal, ideally during retirement when the tax burden may be lower. 2. 457(b) Plan: The 457(b) plan is specifically designed for governmental employees and allows them to defer a portion of their salary on a pre-tax basis. Similar to a 401(k), the contributions and earnings are tax-deferred until withdrawn. This plan offers greater flexibility as it allows employees to make additional "catch-up" contributions closer to retirement age. 3. Roth 401(k) Plan: In addition to the traditional 401(k), the Tennessee Enrollment and Salary Deferral Agreement also offers a Roth 401(k) option. With this plan, employees contribute a portion of their salary after-tax, allowing for tax-free withdrawals in retirement. This can be advantageous for individuals who anticipate being in a higher tax bracket during retirement. It's important for employees to carefully review and understand the terms of the Tennessee Enrollment and Salary Deferral Agreement before enrolling in any of the deferred compensation plans. By taking advantage of these plans, employees can effectively save for their retirement while potentially maximizing their income and minimizing their tax burden.The Tennessee Enrollment and Salary Deferral Agreement is a legal contract that outlines the terms and conditions for employees to enroll in deferred compensation plans offered by the state of Tennessee. This agreement allows employees to defer a portion of their salary to be collected at a future date, typically post-retirement. By participating in this program, employees can strategically plan their retirement income and enjoy potential tax advantages. The Tennessee Enrollment and Salary Deferral Agreement offers various types of deferred compensation plans tailored to employees' needs. These include: 1. 401(k) Plan: This type of plan allows employees to contribute a percentage of their pre-tax salary, which is invested over time in a variety of investment options. The contributions and any potential earnings are not taxed until withdrawal, ideally during retirement when the tax burden may be lower. 2. 457(b) Plan: The 457(b) plan is specifically designed for governmental employees and allows them to defer a portion of their salary on a pre-tax basis. Similar to a 401(k), the contributions and earnings are tax-deferred until withdrawn. This plan offers greater flexibility as it allows employees to make additional "catch-up" contributions closer to retirement age. 3. Roth 401(k) Plan: In addition to the traditional 401(k), the Tennessee Enrollment and Salary Deferral Agreement also offers a Roth 401(k) option. With this plan, employees contribute a portion of their salary after-tax, allowing for tax-free withdrawals in retirement. This can be advantageous for individuals who anticipate being in a higher tax bracket during retirement. It's important for employees to carefully review and understand the terms of the Tennessee Enrollment and Salary Deferral Agreement before enrolling in any of the deferred compensation plans. By taking advantage of these plans, employees can effectively save for their retirement while potentially maximizing their income and minimizing their tax burden.