Which of the following is a characteristic of traditional 401(k) plans?

Traditional 401(k) plans are designed to provide employees with a means to save for retirement while offering certain tax advantages. A key characteristic of these plans is that contributions to a traditional 401(k) are made before taxes, which means that the contributions are deducted from the employee's gross income. This directly reduces their taxable income for the year in which the contributions are made, hence lowering their current tax bill.

When funds are withdrawn from a traditional 401(k) during retirement, they are taxed as ordinary income, making the notion of tax-free withdrawals in retirement not applicable to this type of plan. Furthermore, traditional 401(k) plans do have contribution limits set by the IRS, so stating that they have no contribution limits is inaccurate. Contributions being made after taxes is also not a feature of traditional 401(k) plans, as those contributions, by design, are pre-tax. Thus, it is clear that the characteristic of reducing taxable income through contributions is essential to understanding traditional 401(k) plans.