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A 401(k) Plan is a Profit Sharing Plan which has a feature that
permits voluntary payroll deduction savings for employees.
Employee contributions can be pre-tax dollars, so some of the
salary that would normally go to the government as income taxes
would instead go into a 401(k) account. The employee does not
pay taxes on that money until it is taken out of the account. In
addition, the earnings on the 401(k) investments are not taxable
until taken out of the Plan. Employee contributions can also be
post-tax dollars (Roth Contributions). Roth contributions and
the earnings on those contributions can be removed from the plan
tax-free if certain conditions are met.
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