Kate Prahlad, The Examiner
2007-03-26 07:00:00.0
Current rank: Not ranked

BALTIMORE -

Q What is a 401(k) plan?

A “A 401(k) plan is an employer-sponsored retirement savings plan that offers significant tax benefits,” said James Warring, a certified public accountant and a personal financial specialist.

You contribute to the plan via payroll deduction, which can make saving for retirement easier.

“The money is out of sight, out of mind,” Warring said.

“Perhaps the most important feature of the plan is the ability to make pretax contributions, deducted from your pay and transferred to the plan before federal and most state income taxes are calculated. This reduces your current taxable income,” he said.

You don’t pay income taxes on the amount you contribute — or any investment gains on your contributions — until you receive payments from the plan.