Adopting this provision will allow your eligible employees to defer a portion of their pay into the plan as a tax deferred contribution.
401(k) contributions are invested as elected by your employees, with all earnings on their investment remaining tax deferred until distributed.
These elective deferrals help employees to control their annual tax liability, giving them the option to defer income. As an example, an employee
may defer a portion of his pay while he is in a high income tax bracket, and after retirement withdrawal the funds while he is in a lower bracket.
Employers may also set up a discretionary Employer Match provision which allows you to match your employees deferrals, encouraging them to save for their own retirement.
Read more on the Employer Match provision here.
401(k) elective deferrals are subject to an annual limit per individual. For the 2017 plan year, the limit is $18,000. An individual over the
age of 50 may also make an additional $6,000 catch up contribution.