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401(k) plans are the most popular type of defined contribution plan. They are profit sharing plans that also allow employees to contribute a portion of their wages to the plan on a tax-deferred basis. Typical contribution arrangements also include:
Just like traditional profit sharing plans, 401(k) plans offer great flexibility and can include a variety features such as automatic enrollment, participant loans, hardship distributions, participant direction of investments, daily valuation, and many other options.
For companies that want to maximize tax-deferred savings for owners, partners and other key employees, 401(k) plans are often coupled with a cash balance plan.