What type of retirement plan is a 401K?

A 401(k) plan is classified as a qualified employer retirement plan because it is established by an employer to provide retirement savings benefits to its employees. This type of plan allows employees to make tax-deferred contributions from their paychecks, which means that they do not pay taxes on that income until it is withdrawn during retirement. Additionally, employers may support these plans by matching contributions, providing further incentive for employees to save for retirement.

Qualified plans like the 401(k) also comply with specific regulations set forth by the Employee Retirement Income Security Act (ERISA), ensuring certain protections for participants, including fiduciary standards and nondiscrimination rules that help guarantee fair access to benefits among employees. The tax advantages and regulated structure of a 401(k) make it an effective tool for retirement savings.

The other classifications do not accurately describe a 401(k) plan. For instance, while it is not a government-sponsored plan, there are government incentives that encourage the creation of such plans. Similarly, although a 401(k) may be self-funded in terms of employee contributions, it is fundamentally structured as a qualified plan, which differentiates it from nonqualified retirement plans that do not have the same tax benefits or regulatory framework.