The Revenue Act of 1978 created the 401(k) plan as a tool for employees to easily save for their retirement, while also offering corporations a way of attracting and retaining high-quality employees. Covered employees are allowed to defer compensation by making pretax contributions to their accounts. The 401(k) plan also allows for employer matching, profit sharing, and/or nonelective contributions. The traditional 401(k) has grown considerably in the last 20 years and is primarily suited for mid- to large-size corporations that have enough personnel to offset the high operating expenses.
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