A 401(k) plan is a company-sponsored retirement account that employees can contribute income to and employers can contribute to.
There are two main types of 401(k)s—traditional and Roth—which differ primarily in how they are taxed.
In a traditional 401(k), employee contributions are pre-tax, meaning they reduce taxable income, but cash withdrawals are tax-deductible.
Employee contributions to Roth 401(k)s are made on after-tax income: there is no tax deduction in the year of contribution, but withdrawals are tax-free.
Under the CARES Act, withdrawal rules have been relaxed for those impacted by the COVID-19 pandemic and required minimum distributions have been suspended for 2020.
Defined contribution (DC) pension plans allow employees to invest pre-tax dollars in capital markets where they can grow with tax deferral until retirement.