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An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

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What is a 401(k)?

A 401(k) refers to Cash or Deferred Arrangements (CODA). An optional means of saving money for retirement. Money is deducted from each paycheck, pre-tax, and deposited in an account that is set aside until the employee retires. PERA, 401(k) Voluntary Investment Program (VIP) (PERA members only) is a 401(k). The current annual maximum contribution: $10,500 or 23% of eligible income, whichever is less (subject to change annually). Example: John has designated that 12% of his gross earnings will be deducted from his paycheck and deposited in his 401(k) account. He does not pay any taxes on the money until he withdraws it. Money from the account is then invested in a number of interest accruing funds.

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