If your company has a profit-sharing or stock bonus plan, it has the opportunity of giving you additional tax-sheltered pay. The tax law allows the company to add a cash or deferred pay plan, called a 401(k) plan.
Your company may offer to contribute to a 401(k) plan trust account on your behalf if you forego a salary increase, but in most plans, contributions take the form of salary-reduction deferrals. Under a salary-reduction agreement, you elect to contribute a specified percentage of your wages to the 401(k) plan instead of receiving it as regular salary. In addition, your company may match a portion of your contribution. A salary-reduction deferral is treated as a contribution by your employer that is not taxable to you if the annual contribution limits are not exceeded.
Employers have the option of amending their 401(k) plans to allow employees to designate part or all of their elective contributions as Roth contributions (7.20).