Which type of plan allows employees to make contributions from their paycheck before or after tax?

A 401(k) plan allows employees to make contributions directly from their paychecks either on a pre-tax or after-tax (Roth) basis. This flexibility is one of the key features of 401(k) plans, allowing employees to choose how they want their contributions taxed. Pre-tax contributions reduce an employee's taxable income for the year, while Roth contributions are made with after-tax dollars, providing tax-free withdrawals in retirement.

In contrast, other plans such as the 403(b) plan, which is designed for employees of public schools and certain tax-exempt organizations, primarily focus on pre-tax contributions but may also allow for Roth contributions, though it functions similarly to a 401(k). SIMPLE plans, suited for small businesses, are generally limited to pre-tax contributions and do not provide the same flexibility as a 401(k) plan. The non-existent 405(b) plan makes it clear that it’s not an option available in this context.

Thus, 401(k) plans are distinctly recognized for their adaptability regarding taxation timing, which is why this choice is correct.