An employer 401(k) plan is an employer-sponsored retirement savings plan that gives employees a choice of investment options—typically mutual funds. Employees who participate in a traditional 401(k) plan have a portion of their pre-tax salary invested directly in the option or options they choose. These contributions and any earnings from the 401(k) investments are not taxed until they are withdrawn.
In Texas, as in other states, an employer 401(k) plan is a retirement savings plan sponsored by employers that allows employees to save and invest for their retirement on a tax-deferred basis. Employees can contribute a portion of their pre-tax salary to their 401(k) account, which can be invested in a variety of options such as mutual funds. The contributions made to a traditional 401(k) plan, along with any investment earnings, are not subject to federal income tax until the employee withdraws the money, typically after retirement. The specific rules and regulations governing 401(k) plans are established by federal law under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Texas state law does not have specific statutes that alter the federal framework for 401(k) plans, but state laws regarding creditor protection do apply. In Texas, 401(k) plans are generally protected from creditors in the event of bankruptcy, providing employees with a level of financial security for their retirement savings.
