A 401(k) Plan is a retirement savings plan that is funded by employee contributions and at times matching contributions from the employer. The major attraction of these plans is that the contributions are taken from pre-tax salary, and the funds grow tax-free until withdrawn. Also, the plans are (to some extent) self-directed, and they are portable. Both for-profit and many types of tax-exempt organizations can establish these plans for their employees.

A 401(k) Plan may work best for businesses:

• With 20 or more employees
• That want flexibility in plan design and a full range of mutual fund options
• That wish to set eligibility requirements, within certain guidelines, at the time the plan is established
• Where contributions to the plan can come from voluntary employee salary reduction, from employer, or both