These plans fall under profit sharing plan rules and allow employees to defer a portion of their salary into a 401(k) retirement plan. These contributions are traditionally made on a pre-tax basis, though an after-tax option may be available. The maximum annual deferral amount is periodically indexed by the government for cost of living adjustments (in 2016 the limit was $18,000). Employers may choose to offer a matching contribution based on the amount an employee defers, and additionally may extend a discretionary profit sharing contribution. Non-discrimination rules apply to annual deferrals and matching contributions. This type of plan is designed to involve employees in saving for their retirement and enables their funds to accumulate at an accelerated rate.

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