It is a slight deviation of the Employee Provident Fund Plan prevailing in India. Under the employer-sponsored retirement plan, employees are eligible to make tax-deferred contributions from their salary or wages, the criteria to make contribution is pre-defined. Just like EPF contributions in India, under 401(K) plan also the employee and the employer (the company) contribute to the plan. But there is a difference here. In India, both the contributions are tax-free in the hands of the employee. While, under 401 K plan the employee’s contribution is only tax-free in the hands of an employee, which means they have to pay tax on the contribution made by the employer.

Employers offering 401K plan may make matching or non-elective contributions to the plan on behalf of eligible employees, based on their pre-defined criteria and are also permitted to add a profit-sharing feature to the plan. It is, therefore, a slightly different version EPF plan in India, as the benefits of 401k plan are realized at the time of retirement and regular payments are made to the plan, the plan cannot be withdrawn.