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401(k), in plain English.

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A 401(k) is a US employer-sponsored retirement plan, usually with an employer match, funded through employee payroll deferrals.

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Plans are subject to IRS contribution limits, vesting schedules, and non-discrimination testing, and deferrals must reach the plan trustee on a strict timeline. Workzoom Payroll calculates the deferral and match you configure each pay run; your team handles the deposit.

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How 401(k) works.

A 401(k) deferral is calculated per pay period as a percentage or flat amount of that period's pay, not as a share of an annual total, which is why contributions front-loaded early in the year and contributions spread evenly land differently without a true-up. The employer match usually follows the same per-period logic unless the plan design calls for an annual true-up instead. Deposit timing is regulated: deferrals must reach the trustee as soon as they can reasonably be segregated from the employer's general assets, not on whatever schedule is convenient. Annual limits are set by the IRS and apply per individual across every employer that person worked for in a given year.

Where 401(k) goes wrong.

  1. A late deposit of employee deferrals is treated as a prohibited transaction, not a paperwork delay, with its own penalty exposure.
  2. A match calculated strictly per pay period with no annual true-up shortchanges employees who front-load deferrals early in the year relative to those who spread them evenly. And deferrals that continue past the annual IRS limit are a real risk for someone who also contributed at a different employer that year, since no single payroll system can see the other employer's total.
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Related terms.

Questions about 401(k)

A 401(k) is a US employer-sponsored retirement plan, usually with an employer match, funded through employee payroll deferrals. Plans are subject to IRS contribution limits, vesting schedules, and non-discrimination testing, and deferrals must reach the plan trustee on a strict timeline. Workzoom Payroll calculates the deferral and match you configure each pay run; your team handles the deposit.
A 401(k) deferral is calculated per pay period as a percentage or flat amount of that period's pay, not as a share of an annual total, which is why contributions front-loaded early in the year and contributions spread evenly land differently without a true-up. The employer match usually follows the same per-period logic unless the plan design calls for an annual true-up instead. Deposit timing is regulated: deferrals must reach the trustee as soon as they can reasonably be segregated from the employer's general assets, not on whatever schedule is convenient. Annual limits are set by the IRS and apply per individual across every employer that person worked for in a given year.
A late deposit of employee deferrals is treated as a prohibited transaction, not a paperwork delay, with its own penalty exposure.

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