401(k)
An employer-sponsored retirement account where you contribute pre-tax income, often with employer matching.
What You Need to Know
A 401(k) is the most common retirement savings vehicle in the U.S. You contribute a portion of your paycheck before taxes, reducing your taxable income. The money grows tax-free until retirement.
2025 Contribution Limits:
- Under 50: $23,000/year
- 50+: $30,500/year (catch-up contribution)
Employer Match: Many employers match 3-6% of contributions—this is FREE MONEY. Not contributing enough to get the full match is leaving thousands on the table annually.
Tax Treatment:
- Traditional 401(k): Tax deduction now, taxed in retirement
- Roth 401(k): No deduction now, tax-free in retirement
Key Rule: You can withdraw penalty-free at age 59½. Early withdrawals face 10% penalty plus income tax.
Sources & References
This information is sourced from authoritative government and academic institutions:
- irs.gov
https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-401k-plan-overview
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
401(k) Match Maximizer
Calculate how much free money you're leaving on the table with your 401(k) employer match
Payroll Calculator
Calculate exact take-home pay after federal, state taxes, 401(k), health insurance, and all deductions
Roth IRA Strategy Tool
Roth vs Traditional comparison and Roth conversion calculator - optimize your IRA strategy for maximum lifetime value
Related Terms in Retirement Planning
Backdoor Roth IRA
A legal strategy allowing high earners to contribute to a Roth IRA by converting a Traditional IRA contribution.
Employer Match
Free money from your employer when you contribute to a 401(k) or similar retirement plan, typically matching 3-6% of your salary.
FIRE (Financial Independence, Retire Early)
A movement focused on saving aggressively (50-70% of income) to retire decades earlier than traditional retirement age.
Pre-Tax (Before Tax)
Income or contributions made before taxes are withheld, reducing current taxable income.
QCD (Qualified Charitable Distribution)
A tax-free donation of up to $105,000 per year directly from your IRA to charity, available to those age 70½ and older, that counts toward your RMD.
RMD (Required Minimum Distribution)
The minimum amount you must withdraw from retirement accounts annually starting at age 73, whether you need the money or not.