Is A 401K Qualified Or Nonqualified? 
401 -LRB- k -RRB- refers to the section in the Internal Revenue Code -LRB- IRC -RRB- that permits employers to establish defined contribution plans for their employees . These plans qualify for special treatment under the IRC . Basically money can be contributed to a 401 -LRB- k -RRB- before it is taxed . This reduces the amount of currently taxed income . The money held in the 401 -LRB- k -RRB- can grow without incurring taxation . However , when funds are removed from the 401 -LRB- k -RRB- plan , the proceeds will be taxed as ordinary income except a contribution of after-tax income . 