A 401(k) plan is a profit sharing plan with a cash or deferral arrangement. Employee participants may elect to defer up to $10,500 of their compensation to be contributed to the plan. Employers often match a portion of the deferrals to give participants an incentive to defer. Participants direct the investment of elective contributions thereby limiting the plan trustee's fiduciary duties under IRC 401(c). Plans must pass Actual Deferral Tests (ADP Test) and Actual Contribution Percentage Test (ACP Test) in order to prove the plan does not discriminate in favor of the highly compensated employees.

An example of a 401(k) allocation can be viewed below:

401(k) Study 1

401(k) Plan FAQs