What makes a 401(k) “qualified”?

Meeting §401(a): written plan, exclusive benefit of employees, nondiscrimination testing (ADP/ACP), coverage, vesting, and distribution rules. Qualification buys deductible contributions and deferral; disqualification taxes everything at once.

How much can I put in a 401(k)?

Elective deferrals hit an indexed annual cap (plus $1,000-style catch-ups from 50 and an extra tier in the early 60s), while total additions including matches face a higher indexed ceiling. The IRS publishes both each fall.

What happens to my 401(k) when I leave the job?

Leave it, roll it to an IRA or the new plan, or cash out (taxed plus usually the 10% early tax). Direct trustee-to-trustee rollovers avoid the 20% mandatory withholding that personal checks trigger.

IRC §401 · 26 U.S.C. §401

IRC §401: Qualified Pension and Profit-Sharing Plans

By Paul D. Diaz, EA, MBA · Updated September 20, 2026

IRC §401 sets the qualification rules every 401(k) and pension must meet — exclusive benefit, nondiscrimination, vesting — in exchange for deductible contributions and tax-deferred growth. Fail a test and the whole trust unravels.

What it governs

Exclusive-benefit and nondiscrimination rules — plans can’t favor only the owners
401(k) cash-or-deferred elections with indexed annual caps plus catch-ups
Vesting schedules: your contributions always yours, matches on a clock
Employer deduction for contributions within the 25%-of-pay limit

In the GuideFull treatment in Chapter 21 of the Guide (principal treatment) and Chapter 8 — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).

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Questions this section answers

What makes a 401(k) “qualified”?: Meeting §401(a): written plan, exclusive benefit of employees, nondiscrimination testing (ADP/ACP), coverage, vesting, and distribution rules. Qualification buys deductible contributions and deferral; disqualification taxes everything at once.
How much can I put in a 401(k)?: Elective deferrals hit an indexed annual cap (plus $1,000-style catch-ups from 50 and an extra tier in the early 60s), while total additions including matches face a higher indexed ceiling. The IRS publishes both each fall.
What happens to my 401(k) when I leave the job?: Leave it, roll it to an IRA or the new plan, or cash out (taxed plus usually the 10% early tax). Direct trustee-to-trustee rollovers avoid the 20% mandatory withholding that personal checks trigger.

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