401(k) Plans: Understanding the Rules

Summary

This practice note provides an overview of 401(k) plans, including a basis on which to consider the issues surrounding formation, qualification, and operation of a 401(k) plan. The practice note also provides guidance on the types of entities that can have a 401(k) plan, how the nondiscrimination rules can be satisfied, and under what circumstances employees can withdraw funds from a 401(k) plan. This practice note has been updated to summarize relevant changes under the SECURE 2.0 Act, enacted on December 29, 2022, as Division T of Consolidated Appropriations Act, 2023 (Pub. L. No. 117-328). In large part, this legislation continues efforts reflected in the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Div. O of the Further Consolidated Appropriations Act, 2020 (Pub. L. No. 116-94)) to modify rules for qualified plans and IRAs to incentivize and simplify saving for retirement.