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 contributionsโthis 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 59ยฝ. 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 Tool - Free Online
Plan your retirement with our free 401(k) match maximizer tool. See how your savings will grow over time.
Complete Tax Calculator - Free Online Tool
Calculate your complete tax with our free tool. Get accurate tax estimates and plan ahead.
Roth IRA Strategy Tool
Plan your retirement with our free roth ira strategy tool. See how your savings will grow over time.
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 70ยฝ 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.