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1. Shard Calculation

Query:

Response:

Calculated Shard: 156 (from laksa061)

2. Crawled Status Check

Query:

curl -X POST \
  'http://laksa156.int.ahrefs:8124/' \
  -H 'Content-Type: text/plain' \
  -H 'X-ClickHouse-Database: crawler3' \
  -H 'Authorization: Basic YXBpOg==' \
  -d 'SELECT getAhrefsURLFromUnparsed(src_unparsed) AS found_url, ifNull(toUnixTimestamp(download_stamp), 0) AS crawl_time, ifNull(toUnixTimestamp(props_url_first_seen), 0) AS first_indexed_time, download_http_code AS http_code, src_unparsed AS src_unparsed, src_root_hash AS src_root_hash, history_drop_reason AS history_drop_reason, meta_title AS meta_title, meta_descriptions AS meta_descriptions, attrs_boilerpipe_text AS attrs_boilerpipe_text, attrs_markdown AS attrs_markdown, attrs_readable_markdown AS attrs_readable_markdown, meta_canonical AS meta_canonical FROM crawler3.page_info_local FINAL PREWHERE (src_root_hash, src_unparsed) IN ((getAhrefsRootHashFromUnparsed(getAhrefsUnparsedNoserviceFromURL(\'https://www.forbes.com/advisor/retirement/what-is-401k/\')), getAhrefsUnparsedNoserviceFromURL(\'https://www.forbes.com/advisor/retirement/what-is-401k/\'))) FORMAT JSONEachRow'

Response:

{"found_url":"https:\/\/www.forbes.com\/advisor\/retirement\/what-is-401k\/","crawl_time":1776376124,"first_indexed_time":1588209678,"http_code":200,"src_unparsed":"com,forbes!www,\/advisor\/retirement\/what-is-401k\/ s443","src_root_hash":"7074450602188365556","history_drop_reason":null,"meta_title":"What Is A 401(k)? A Beginner’s Guide – Forbes Advisor","meta_descriptions":["A 401(k) is an employer-sponsored retirement plan. Tax benefits and potential employer matching contributions make 401(k)s a wonderful way to save for retirement."],"attrs_boilerpipe_text":"As an employer-sponsored retirement savings plan, the 401(k) is commonly offered as part of a job benefits package.\nWith this retirement account, you choose to put aside a percentage of each paycheck and watch as your money grows tax deferred.\nA 401(k) is a voluntary—often employer-sponsored—retirement savings plan that lets you contribute a portion of your paycheck before or after it’s taxed.\nWhen you sign up for your employer’s 401(k) plan, you agree to have a percentage of each paycheck directly deposited into your 401(k) account. Your employer may also deposit money into your account by matching some or all of your contributions.\nThe money is then invested into mutual funds,\nexchange-traded funds\n(ETFs), target-date funds, index funds,\nmoney market funds\nand individual stocks, to name a few investment examples.\nUnless you meet certain criteria, a 401(k) remains untouched until you reach the retirement age of 59½.\nRelated:\nBest 401(k) Plans\nWhat Is a Traditional 401(k)?\nA traditional 401(k) is not taxed when it goes into the account, but taxed at a normal income rate when distributed during retirement. With this type of retirement account, contributions are taken out of your paycheck before income taxes are calculated, meaning contributions help lower your taxable income.\nWhat Is a Roth 401(k)?\nWith a\nRoth 401(k)\n, contributions are made after you pay income taxes. There’s no upfront tax break. You don’t pay taxes on the money you take out of your account after retirement.\nPros and Cons of a 401(k)\nA 401(k) comes with several advantages that make it one of the most powerful ways to save for retirement. As Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, says, “The biggest advantage of a 401(k) is forced savings discipline for an investor—you’re saving money for retirement before any money hits your checking account.”\nThis automatic saving, combined with the tax benefits of pretax contributions, means your money grows more efficiently than it would in a taxable account. In addition, many employers offer a matching contribution, which Yoshida calls “essentially free money,” making participation a “no-brainer” if it’s available.\nPros of a 401(k):\nPretax contributions reduce taxable income\nEmployer match\nHigher contribution limits compared to IRAs\nRegimented way to save for retirement\nTax-deferred growth for more efficient compounding\nOptions for loans and hardship withdrawals\nDollar-cost averaging through payroll deductions\nBut 401(k)s also come with drawbacks worth considering.\n“Cons of a 401(k) include limited investment choices, vesting rules and possible fees,” says Bethany Dever, vice president and relationship manager at Rockland Trust, a commercial bank headquartered in Massachusetts.\nWhen compared to alternative savings options, 401(k)s have a limited investment menu. You can still choose your investments, but it all depends on the options your company has chosen.\nCons of a 401(k):\nLimited investment options compared to\nindividual retirement accounts\n(IRAs) or\nbrokerage accounts\nPossible high administrative or fund fees\nPenalties for early withdrawals (before age 59 ½, in most cases)\nVesting schedules that delay ownership of employer contributions\nLess flexibility than other investment accounts\n401(k) Contributions\nYou have full control over how much of your income you contribute to your 401(k) account each year, if you stay within the IRS limits.\nWhen you start a new job, you elect to save a percentage of your annual salary. You can adjust the amount you contribute up or down as often as the rules of the plan allow. Unlike health insurance, where you enroll once per year, you can halt your contributions at any time.\nDepending on your employer’s plan, you may be automatically enrolled in a 401(k) plan unless you choose to opt out of the plan. For others, you may need to actively choose to enroll in a plan or opt out.\nAnnual 401(k) Contribution Limits\nThere is an annual limit to how much you can contribute to your 401(k) accounts. In 2026, the 401(k)contribution limit for those under 50 is $24,500, up from $23,500 in 2025.\nIf you are age 50 or older, you are eligible for additional catch-up contributions of $8,000.\nThere is an\nadditional 401(k) catch-up\namount for employees ages 60, 61, 62 or 63. If your plan allows, you can contribute up to $11,250.\n401(k) Contribution Limits 2025\nType of Contribution\n2024 Limit\n2025 Limit\n2026 Limit\nMaximum Employee Contribution\n$23,000\n$23,500\n$24,500\nCatch-Up Contributions for those 50 or Older\n$7,500\n$7,500\n$8,000\nCatch-Up Contributions (in place of $7,500) for those 60-63\nn\/a\n$11,250\n$11,250\nWhat Is a 401(k) Matching Contribution?\nAs part of a benefits package, some employers will match a certain percentage of pay, should you decide to put money aside into your employer-sponsored 401(k).\nAccording to Vanguard’s\n2025 industry report\n, the average employer match is 4.6% of annual pay.\nBut some employers will match up to 6%. Other companies follow a formula that matches $0.50 for every dollar an employee contributes up to a certain percentage of their salary.\nWhen starting a new job, ask whether your employer provides matching 401(k) contributions, and how much you need to contribute to maximize the match.\nPro Tip\nYou should set your contribution level to obtain the full match; otherwise, you’re missing out on free money.\nHow Do Employer 401(k) Matching Contributions Work?\nEmployer matching contributions are typically straightforward, except when vesting comes into play (more on that below).\nIf your salary is $60,000 and your employer offers a dollar-for-dollar match up to 5% of your annual pay, you could contribute $3,000. For that contribution, your employer would also contribute $3,000. That’s $6,000 going into your 401(k) each year—double the amount you put in.\nIf instead your employer uses a $0.50-on-the-dollar match up to 6%, and you contribute $3,600, the company would add $1,800. Together, that’s $5,400 invested toward your retirement.\nIf you plan to stay with your company long-term, you can\neasily calculate your 401(k) savings\n.\nAnnual Limits for an Employer’s 401(k) Match\nSimilar to how you are limited in how much money you can contribute to your 401(k), employers are also limited.\nIn 2025, the combined employer and employee contributions are $70,000 for those under 50. If you are 50 or older, catch-up contributions increase your combined limit to $77,500 or $81,250 if you are between the ages of 60 and 63.\nContribution Type\n2024 Limit\n2025 Limit\n401(k) Employee & Employer Contributions\n$69,000\n$70,000\nTotal with Catch-Up Contributions for those 50 or Older\n$76,500\n$77,500\nCatch-Up Contributions (in place of $7,500) for those 60-63\nn\/a\n$81,250\n401(k) Matching Contributions and Vesting\nSome employers grant 401(k) matching contributions that “vest” over time. That means the money your employer matches doesn’t become fully yours until you meet certain criteria. This vesting schedule is typically put in place to encourage employees to remain with the company long term.\nUnder a vesting schedule, you gradually take ownership of your employer’s matching contributions over several years. If you remain with the company for their set vesting period, you are said to be “fully vested” in your 401(k) and have ownership over all contributions made to your retirement account.\nExample:\nLet’s say your employer’s contributions become 50% vested after you’ve worked for the company for two years, but you become fully vested after five years. If you were to leave the company and take a new job after only three years, you would only get half of the contributions your employer pledged to your account.\nPro Tip\nYour contributions are always 100% yours; vesting only applies to employer matching contributions.\nIRA vs. 401(k)\nThe main difference between an IRA and a 401(k) is that an IRA is a personal retirement account, and a traditional 401(k) is an employer-sponsored 401(k) with much higher annual contribution limits than IRAs, which is ideal for anyone in a high tax bracket who wants to lower their taxable income.\nFor instance, for the 2026 tax year, the annual 401(k) contribution limit for those under age 50 is $24,500, but only $7,500 for an IRA.\nIRAs are much more flexible than a 401(k). You get to choose which online brokerage to use for your IRA, which can give you access to benefits like robo-advisors, personalized customer service and others.\nWith a 401(k), employers often pick and choose which types of investments you can make. IRAs, on the other hand, have many options for you to choose from.\nComparing a Traditional 401(k) vs. Traditional IRA\nCharacteristic\nTraditional 401(k)\nTraditional IRA\nManaged by\nEmployer\/plan administrator\nYou\nContribution limits\nHigher than IRAs\nLower\nInvestment options\nSelection chosen by employer\nWide range of options\nEmployer contributions\nMatches depend on employer, but may be up to 6% of your income\nNot applicable\nFlexibility\nTied to the employer\nNot tied to an employer\nChoosing Investments for Your 401(k)\nYour personal timeline matters and may be one of the key factors to consider when choosing how to invest your money. “The longer you have until retirement, the more aggressive you can be,” Dever says. “If your plan offers target date funds or allocation funds, these are great ‘set it and forget it’ options.” But if you are getting closer to retirement age, your financial advisor may offer different advice.\nMost 401(k) plans offer a mix of options that range from conservative bond funds to aggressive stock funds. The right choice depends on your financial goals, risk tolerance and time left until retirement.\nThe typical employer-sponsored plan provides a selection of\nmutual funds\n, index funds and exchange-traded funds for you to choose from.\nYou might choose to stick with the default option—typically a target-date fund with a mix of stocks and bonds—or, if your plan allows, be pickier about where you invest your money.\nYou have full control over how much of your 401(k) balance to invest in different funds. You could opt to invest 70% of your balance in a target-date fund, 20% in a bond index fund and 10% in an equity index fund, for example.\nHow Do You Start a 401(k)?\nThe easiest way to start a 401(k) is to go through your employer and enroll in their sponsored plan. If your company doesn’t offer 401(k) plans or you’re self-employed, you can set up your own plan through an online broker.\nOnce you sign up, all you need to do is:\nSet your contribution rate\nChoose your contribution type, like a Roth or traditional 401(k)\nSelect the type of investments you’d like to make (many plans have a default option, while others give you more control over where your money goes)\nThose who are self-employed may have additional steps, like getting an employer identification number from the IRS and choosing the online brokerage you’d like to invest with.\nHow To Withdraw Funds From a 401(k)\nWhen you reach retirement age of 59 ½, you can take as much money out of your retirement plan as you want. That said, be prepared to pay income taxes on that amount unless you have qualified withdrawals from Roth 401(k) accounts because you’ve already footed the tax bill on those.\nTraditional 401(k) plans are taxed as ordinary income when you make a qualified withdrawal.\nOnce you reach the age of 73, you must take out a required minimum amount of money (RMDs) from your retirement account each year.\nIf you withdraw money from your 401(k) too early, you might have to pay a penalty on top of tax on the distribution.\nHow Do 401(k) RMDs Work?\nRMDs are the minimum amount you are required to take out of your retirement accounts each year.\nRMDs kick in when you turn 73, and apply to any traditional IRA, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA and retirement accounts that are not Roth IRAs (unless the account owner is deceased, then there are\nspecified RMD rules\nfor that).\nYou can take out more than your required RMD, but not less, and all withdrawals will be taxed at your income level unless the funds were previously taxed, as with Roth accounts. If you fail to take out your RMDs, you might be subject to an excise tax of 25%.\nThe amount you owe changes each year and is based on the amount of money in your accounts and your life expectancy factors.\nHow To Avoid 401(k) Early Withdrawal Penalties\nThe pros and cons of early withdrawal are often underestimated.\nWithdrawing funds from the 401(k) plan before age 59½ typically triggers both an income tax event and a\n10% early withdrawal penalty\n.\nRelated link:\n401(k) early withdrawal calculator\nIf you need to withdraw from your retirement accounts before you turn 59 ½, there are some qualified ways to do so without paying the penalty. But it depends on the type of retirement plan. In some cases, you can take out money penalty-free to pay for:\nUnreimbursed medical expenses that exceed 7.5% of your adjusted gross income\nQualified distributions to military reservists called up for active duty\nTotal and permanent disability\nBirth or adoption expenses, with distributions up to $5,000 per child\nUp to $22,000 for those who sustain economic loss during a federally declared disaster\n401(k) Loans\nYou can borrow money from your 401(k) account and repay it like any other loan. But if you don’t repay the loan, then you’ll have to pay the early withdrawal penalties (if you’re under 59 ½), and the loan balance will be a taxable distribution.\nWhat Happens to Your 401(k) When You Change Jobs?\nWhen you change jobs, your 401(k) can easily follow, or not. If you have enough money vested in your account, you can roll your plan into a new one, keep your old one or cash it out.\nLeave Your 401(k) with Your Former Employer\nWith this option, your funds will still grow tax deferred, and you can manage your investments, but you can’t contribute any new money to the account.\nMove Your 401(k) to Your New Employer’s Plan\nIt’s hard to manage more than one retirement plan. Rolling your account over to your new employer’s retirement plan might be a good option. This transaction can be as easy as your previous retirement plan sponsor, mailing a check to the new one.\nRoll Your 401(k) Balance Into IRA\nIf you want a more varied choice in investments, you can open your own IRA and roll your retirement funds into it. This option allows you to continue contributing earned income into your account and still take advantage of the tax benefits.\nExplore the Best 401(k) Plans\nFrequently Asked Questions (FAQs)\nIn a traditional 401(k), income taxes on contributions and earnings are deferred. With a Roth 401(k), you pay taxes before your contribution goes in and are withdrawn tax-free once you hit retirement.\nIt depends on your financial situation.\nIf you need to withdraw before age 59 ½, borrowing money with a 401(k) loan will avoid the 10% tax penalty. Otherwise, it’s best to leave your 401(k) untouched until you reach retirement age, according to financial experts.\nTraditional 401(k) withdrawals are never tax-free. 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How Does It Work?\nAudited & Verified: Nov 13, 2025, 2:36pm\n\n[![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\n![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)\n\n[Alora Bopray](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)Staff Writer\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\n![close icon](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/forbes-media-close-icon.svg)\n\n![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)\n\n[Alora Bopray](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)Staff Writer\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\nWritten By\n\n[Alora Bopray](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\n![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)\n\n[Alora Bopray](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)Staff Writer\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\n![close icon](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/forbes-media-close-icon.svg)\n\n![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)\n\n[Alora Bopray](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)Staff Writer\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\nStaff Writer\n\n[![Farran Powell](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot-88x88.jpeg)](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)\n\n![Farran Powell](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot-88x88.jpeg)\n\nFact Checked by\n\n[Farran Powell](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)Staff Editor\n\nFarran Powell is the managing editor of investing at Forbes Advisor. She was previously the assistant managing editor of investing at U.S. News & World Report. Her work has appeared in numerous publications including TheStreet, Mansion Global, CN...\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)\n\n![close icon](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/forbes-media-close-icon.svg)\n\n![Farran Powell](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot-88x88.jpeg)\n\nFact Checked by\n\n[Farran Powell](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)Staff Editor\n\nFarran Powell is the managing editor of investing at Forbes Advisor. She was previously the assistant managing editor of investing at U.S. News & World Report. Her work has appeared in numerous publications including TheStreet, Mansion Global, CN...\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)\n\nFact Checked\n\n[Farran Powell](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)\n\n![Farran Powell](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot-88x88.jpeg)\n\nFact Checked by\n\n[Farran Powell](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)Staff Editor\n\nFarran Powell is the managing editor of investing at Forbes Advisor. She was previously the assistant managing editor of investing at U.S. News & World Report. Her work has appeared in numerous publications including TheStreet, Mansion Global, CN...\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)\n\n![close icon](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/forbes-media-close-icon.svg)\n\n![Farran Powell](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot-88x88.jpeg)\n\nFact Checked by\n\n[Farran Powell](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)Staff Editor\n\nFarran Powell is the managing editor of investing at Forbes Advisor. She was previously the assistant managing editor of investing at U.S. News & World Report. Her work has appeared in numerous publications including TheStreet, Mansion Global, CN...\n\n[Read Full Bio![See Full Bio](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/social-icons\/read-full-bio.svg)](https:\/\/www.forbes.com\/advisor\/author\/fpowell\/)\n\nStaff Editor\n\n& 1 other\n\nHave a question we may not have answered?\n\nAsk our editors here\n\nHave a question for Alora Bopray or our other editors?\n\nAsk here for a chance to be featured in a story.\n\nThis form is protected by reCAPTCHA Enterprise and the Google [Privacy Policy](https:\/\/policies.google.com\/privacy)and [Terms of Service](https:\/\/policies.google.com\/terms)apply.\n\n![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)\n\n![Farran Powell](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot-88x88.jpeg)\n\nSend a note to Alora Bopray, Farran Powell and our other editors. We read every email.\n\nBy submitting this form, you agree to allow us to collect, store, and potentially publish your provided information, including name and question, in the article or any related content. You confirm that the submitted content is original, accurate, and non-infringing on any third-party rights. We may contact you via the email address provided for follow-up questions or to notify you if your question is selected for publication. See our [Terms of Use](https:\/\/www.forbes.com\/terms-and-conditions\/#5cc91797193f)and our [Privacy Policy](https:\/\/www.forbes.com\/advisor\/privacy-policy\/).\n\nThank you for submitting your question.\n\nKeep reading Forbes Advisor for the chance to see the answer to your question in one of our upcoming stories. Our editors also may be in touch with follow-up questions.\n\nContinue reading\n\n![What Is A 401(k)? How Does It Work?](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/900x510\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/10\/401k.jpg) Getty\n\nAs an employer-sponsored retirement savings plan, the 401(k) is commonly offered as part of a job benefits package.\n\nWith this retirement account, you choose to put aside a percentage of each paycheck and watch as your money grows tax deferred.\n\n## What Is a 401(k)?\nA 401(k) is a voluntary—often employer-sponsored—retirement savings plan that lets you contribute a portion of your paycheck before or after it’s taxed.\n\nWhen you sign up for your employer’s 401(k) plan, you agree to have a percentage of each paycheck directly deposited into your 401(k) account. Your employer may also deposit money into your account by matching some or all of your contributions.\n\nThe money is then invested into mutual funds, [exchange-traded funds](https:\/\/www.forbes.com\/advisor\/investing\/best-etfs\/) (ETFs), target-date funds, index funds, [money market funds](https:\/\/www.forbes.com\/advisor\/investing\/the-best-money-market-mutual-funds\/) and individual stocks, to name a few investment examples.\n\nUnless you meet certain criteria, a 401(k) remains untouched until you reach the retirement age of 59½.\n\n**Related:** [Best 401(k) Plans](https:\/\/www.forbes.com\/advisor\/retirement\/best-401k-plans\/)\n\n### What Is a Traditional 401(k)?\nA traditional 401(k) is not taxed when it goes into the account, but taxed at a normal income rate when distributed during retirement. With this type of retirement account, contributions are taken out of your paycheck before income taxes are calculated, meaning contributions help lower your taxable income.\n\n### What Is a Roth 401(k)?\nWith a [Roth 401(k)](https:\/\/www.forbes.com\/advisor\/retirement\/what-is-roth-401k\/), contributions are made after you pay income taxes. There’s no upfront tax break. You don’t pay taxes on the money you take out of your account after retirement.\n\n## Pros and Cons of a 401(k)\nA 401(k) comes with several advantages that make it one of the most powerful ways to save for retirement. As Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, says, “The biggest advantage of a 401(k) is forced savings discipline for an investor—you’re saving money for retirement before any money hits your checking account.”\n\nThis automatic saving, combined with the tax benefits of pretax contributions, means your money grows more efficiently than it would in a taxable account. In addition, many employers offer a matching contribution, which Yoshida calls “essentially free money,” making participation a “no-brainer” if it’s available.\n\n**Pros of a 401(k):**\n\n- Pretax contributions reduce taxable income\n- Employer match\n- Higher contribution limits compared to IRAs\n- Regimented way to save for retirement\n- Tax-deferred growth for more efficient compounding\n- Options for loans and hardship withdrawals\n- Dollar-cost averaging through payroll deductions\n\nBut 401(k)s also come with drawbacks worth considering.\n\n“Cons of a 401(k) include limited investment choices, vesting rules and possible fees,” says Bethany Dever, vice president and relationship manager at Rockland Trust, a commercial bank headquartered in Massachusetts.\n\nWhen compared to alternative savings options, 401(k)s have a limited investment menu. You can still choose your investments, but it all depends on the options your company has chosen.\n\n**Cons of a 401(k):**\n\n- Limited investment options compared to [individual retirement accounts](https:\/\/www.forbes.com\/advisor\/retirement\/best-ira-accounts\/) (IRAs) or [brokerage accounts](https:\/\/www.forbes.com\/advisor\/investing\/best-online-brokers\/)\n- Possible high administrative or fund fees\n- Penalties for early withdrawals (before age 59 ½, in most cases)\n- Vesting schedules that delay ownership of employer contributions\n- Less flexibility than other investment accounts\n## 401(k) Contributions\nYou have full control over how much of your income you contribute to your 401(k) account each year, if you stay within the IRS limits.\n\nWhen you start a new job, you elect to save a percentage of your annual salary. You can adjust the amount you contribute up or down as often as the rules of the plan allow. Unlike health insurance, where you enroll once per year, you can halt your contributions at any time.\n\nDepending on your employer’s plan, you may be automatically enrolled in a 401(k) plan unless you choose to opt out of the plan. For others, you may need to actively choose to enroll in a plan or opt out.\n\n## Annual 401(k) Contribution Limits\nThere is an annual limit to how much you can contribute to your 401(k) accounts. In 2026, the 401(k)contribution limit for those under 50 is \\$24,500, up from \\$23,500 in 2025.\n\nIf you are age 50 or older, you are eligible for additional catch-up contributions of \\$8,000.\n\nThere is an [additional 401(k) catch-up](https:\/\/www.forbes.com\/advisor\/retirement\/401k-catch-up-contributions\/) amount for employees ages 60, 61, 62 or 63. If your plan allows, you can contribute up to \\$11,250.\n\n### 401(k) Contribution Limits 2025\n| Type of Contribution | 2024 Limit | 2025 Limit | 2026 Limit |\n|---|---|---|---|\n| Maximum Employee Contribution | \\$23,000 | \\$23,500 | \\$24,500 |\n| Catch-Up Contributions for those 50 or Older | \\$7,500 | \\$7,500 | \\$8,000 |\n| Catch-Up Contributions (in place of \\$7,500) for those 60-63 | n\/a | \\$11,250 | \\$11,250 |\n\n![Left Arrow](data:image\/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADJSURBVHgBXZCxDcIwEEXvLrbTMgIjeAQXQB0aUiBENgAmIBswQkJJg6iQaGAF2CBskBY5wbEjWXLiwjr73f\/\/dAijo5JiEse01Zrd2BhwgS8DIDnXcgBFjAUASltWkeY5eTBPSwcSW9ZMM3W\/rr+9crY6HxEgcwCBeuD+yQFCyPsH\/pePy+bj3YiCzLaNTDgDumuRlidb7o2BmpCUV2M4EAJmrqFtmHzaXAxtfAOAqRrNVRgJ+mcOFryt4dQuIR8o\/ZaEoB1rWNkBtuxEvL1bUnQAAAAASUVORK5CYII=)\n\n![Right Arrow](data:image\/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADQSURBVHgBdVC5DcJAENw53pAS6AA6wAlPCAGCDLsSoAJEBXwJEDk0JrA7wCW4BMeH5GXP2MggscHenEYzNzew5rt2PVULrdNt6DoJlUY1GEsCrWp1BNZ41\/oiAV7LGQPo1hrYlEmYNRLrlNVDYIuJ9\/eL7WRKs7yzE4OUJTABwR7M9puPspj+9NiD4tDglGml6M8YolJchrNTh8CewCaJyr8u1plt9tc8ECTQLQ+EN4FAYJuIXf9iTwq3qimBhWDm6KnZKb9bzUpgRFrz4be+FwjJTXtIGD7JAAAAAElFTkSuQmCC)\n\nSee More\n\nSee Less\n## What Is a 401(k) Matching Contribution?\nAs part of a benefits package, some employers will match a certain percentage of pay, should you decide to put money aside into your employer-sponsored 401(k).\n\nAccording to Vanguard’s [2025 industry report](https:\/\/institutional.vanguard.com\/content\/dam\/inst\/iig-transformation\/insights\/pdf\/2025\/has\/2025_How_America_Saves.pdf), the average employer match is 4.6% of annual pay.\n\nBut some employers will match up to 6%. Other companies follow a formula that matches \\$0.50 for every dollar an employee contributes up to a certain percentage of their salary.\n\nWhen starting a new job, ask whether your employer provides matching 401(k) contributions, and how much you need to contribute to maximize the match.\n\nPro Tip\n\nYou should set your contribution level to obtain the full match; otherwise, you’re missing out on free money.\n## How Do Employer 401(k) Matching Contributions Work?\nEmployer matching contributions are typically straightforward, except when vesting comes into play (more on that below).\n\nIf your salary is \\$60,000 and your employer offers a dollar-for-dollar match up to 5% of your annual pay, you could contribute \\$3,000. For that contribution, your employer would also contribute \\$3,000. That’s \\$6,000 going into your 401(k) each year—double the amount you put in.\n\nIf instead your employer uses a \\$0.50-on-the-dollar match up to 6%, and you contribute \\$3,600, the company would add \\$1,800. Together, that’s \\$5,400 invested toward your retirement.\n\nIf you plan to stay with your company long-term, you can [easily calculate your 401(k) savings](https:\/\/www.forbes.com\/advisor\/retirement\/401k-calculator\/).\n\n### Annual Limits for an Employer’s 401(k) Match\nSimilar to how you are limited in how much money you can contribute to your 401(k), employers are also limited.\n\nIn 2025, the combined employer and employee contributions are \\$70,000 for those under 50. If you are 50 or older, catch-up contributions increase your combined limit to \\$77,500 or \\$81,250 if you are between the ages of 60 and 63.\n\n| Contribution Type | 2024 Limit | 2025 Limit |\n|---|---|---|\n| 401(k) Employee & Employer Contributions | \\$69,000 | \\$70,000 |\n| Total with Catch-Up Contributions for those 50 or Older | \\$76,500 | \\$77,500 |\n| Catch-Up Contributions (in place of \\$7,500) for those 60-63 | n\/a | \\$81,250 |\n\n![Left Arrow](data:image\/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADJSURBVHgBXZCxDcIwEEXvLrbTMgIjeAQXQB0aUiBENgAmIBswQkJJg6iQaGAF2CBskBY5wbEjWXLiwjr73f\/\/dAijo5JiEse01Zrd2BhwgS8DIDnXcgBFjAUASltWkeY5eTBPSwcSW9ZMM3W\/rr+9crY6HxEgcwCBeuD+yQFCyPsH\/pePy+bj3YiCzLaNTDgDumuRlidb7o2BmpCUV2M4EAJmrqFtmHzaXAxtfAOAqRrNVRgJ+mcOFryt4dQuIR8o\/ZaEoB1rWNkBtuxEvL1bUnQAAAAASUVORK5CYII=)\n\n![Right Arrow](data:image\/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADQSURBVHgBdVC5DcJAENw53pAS6AA6wAlPCAGCDLsSoAJEBXwJEDk0JrA7wCW4BMeH5GXP2MggscHenEYzNzew5rt2PVULrdNt6DoJlUY1GEsCrWp1BNZ41\/oiAV7LGQPo1hrYlEmYNRLrlNVDYIuJ9\/eL7WRKs7yzE4OUJTABwR7M9puPspj+9NiD4tDglGml6M8YolJchrNTh8CewCaJyr8u1plt9tc8ECTQLQ+EN4FAYJuIXf9iTwq3qimBhWDm6KnZKb9bzUpgRFrz4be+FwjJTXtIGD7JAAAAAElFTkSuQmCC)\n\nSee More\n\nSee Less\n### 401(k) Matching Contributions and Vesting\nSome employers grant 401(k) matching contributions that “vest” over time. That means the money your employer matches doesn’t become fully yours until you meet certain criteria. This vesting schedule is typically put in place to encourage employees to remain with the company long term.\n\nUnder a vesting schedule, you gradually take ownership of your employer’s matching contributions over several years. If you remain with the company for their set vesting period, you are said to be “fully vested” in your 401(k) and have ownership over all contributions made to your retirement account.\n\n**Example:** Let’s say your employer’s contributions become 50% vested after you’ve worked for the company for two years, but you become fully vested after five years. If you were to leave the company and take a new job after only three years, you would only get half of the contributions your employer pledged to your account.\n\nPro Tip\n\nYour contributions are always 100% yours; vesting only applies to employer matching contributions.\n## IRA vs. 401(k)\nThe main difference between an IRA and a 401(k) is that an IRA is a personal retirement account, and a traditional 401(k) is an employer-sponsored 401(k) with much higher annual contribution limits than IRAs, which is ideal for anyone in a high tax bracket who wants to lower their taxable income.\n\nFor instance, for the 2026 tax year, the annual 401(k) contribution limit for those under age 50 is \\$24,500, but only \\$7,500 for an IRA.\n\nIRAs are much more flexible than a 401(k). You get to choose which online brokerage to use for your IRA, which can give you access to benefits like robo-advisors, personalized customer service and others.\n\nWith a 401(k), employers often pick and choose which types of investments you can make. IRAs, on the other hand, have many options for you to choose from.\n\n### Comparing a Traditional 401(k) vs. Traditional IRA\n| Characteristic | Traditional 401(k) | Traditional IRA |\n|---|---|---|\n| Managed by | Employer\/plan administrator | You |\n| Contribution limits | Higher than IRAs | Lower |\n| Investment options | Selection chosen by employer | Wide range of options |\n| Employer contributions | Matches depend on employer, but may be up to 6% of your income | Not applicable |\n| Flexibility | Tied to the employer | Not tied to an employer |\n\n![Left Arrow](data:image\/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADJSURBVHgBXZCxDcIwEEXvLrbTMgIjeAQXQB0aUiBENgAmIBswQkJJg6iQaGAF2CBskBY5wbEjWXLiwjr73f\/\/dAijo5JiEse01Zrd2BhwgS8DIDnXcgBFjAUASltWkeY5eTBPSwcSW9ZMM3W\/rr+9crY6HxEgcwCBeuD+yQFCyPsH\/pePy+bj3YiCzLaNTDgDumuRlidb7o2BmpCUV2M4EAJmrqFtmHzaXAxtfAOAqRrNVRgJ+mcOFryt4dQuIR8o\/ZaEoB1rWNkBtuxEvL1bUnQAAAAASUVORK5CYII=)\n\n![Right Arrow](data:image\/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADQSURBVHgBdVC5DcJAENw53pAS6AA6wAlPCAGCDLsSoAJEBXwJEDk0JrA7wCW4BMeH5GXP2MggscHenEYzNzew5rt2PVULrdNt6DoJlUY1GEsCrWp1BNZ41\/oiAV7LGQPo1hrYlEmYNRLrlNVDYIuJ9\/eL7WRKs7yzE4OUJTABwR7M9puPspj+9NiD4tDglGml6M8YolJchrNTh8CewCaJyr8u1plt9tc8ECTQLQ+EN4FAYJuIXf9iTwq3qimBhWDm6KnZKb9bzUpgRFrz4be+FwjJTXtIGD7JAAAAAElFTkSuQmCC)\n\nSee More\n\nSee Less\n## Choosing Investments for Your 401(k)\nYour personal timeline matters and may be one of the key factors to consider when choosing how to invest your money. “The longer you have until retirement, the more aggressive you can be,” Dever says. “If your plan offers target date funds or allocation funds, these are great ‘set it and forget it’ options.” But if you are getting closer to retirement age, your financial advisor may offer different advice.\n\nMost 401(k) plans offer a mix of options that range from conservative bond funds to aggressive stock funds. The right choice depends on your financial goals, risk tolerance and time left until retirement.\n\nThe typical employer-sponsored plan provides a selection of [mutual funds](https:\/\/www.forbes.com\/advisor\/investing\/best-mutual-funds\/), index funds and exchange-traded funds for you to choose from.\n\nYou might choose to stick with the default option—typically a target-date fund with a mix of stocks and bonds—or, if your plan allows, be pickier about where you invest your money.\n\nYou have full control over how much of your 401(k) balance to invest in different funds. You could opt to invest 70% of your balance in a target-date fund, 20% in a bond index fund and 10% in an equity index fund, for example.\n\n## How Do You Start a 401(k)?\nThe easiest way to start a 401(k) is to go through your employer and enroll in their sponsored plan. If your company doesn’t offer 401(k) plans or you’re self-employed, you can set up your own plan through an online broker.\n\nOnce you sign up, all you need to do is:\n\n1. Set your contribution rate\n2. Choose your contribution type, like a Roth or traditional 401(k)\n3. Select the type of investments you’d like to make (many plans have a default option, while others give you more control over where your money goes)\n\nThose who are self-employed may have additional steps, like getting an employer identification number from the IRS and choosing the online brokerage you’d like to invest with.\n\n## How To Withdraw Funds From a 401(k)\nWhen you reach retirement age of 59 ½, you can take as much money out of your retirement plan as you want. That said, be prepared to pay income taxes on that amount unless you have qualified withdrawals from Roth 401(k) accounts because you’ve already footed the tax bill on those.\n\nTraditional 401(k) plans are taxed as ordinary income when you make a qualified withdrawal.\n\nOnce you reach the age of 73, you must take out a required minimum amount of money (RMDs) from your retirement account each year.\n\nIf you withdraw money from your 401(k) too early, you might have to pay a penalty on top of tax on the distribution.\n\n### How Do 401(k) RMDs Work?\nRMDs are the minimum amount you are required to take out of your retirement accounts each year.\n\nRMDs kick in when you turn 73, and apply to any traditional IRA, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA and retirement accounts that are not Roth IRAs (unless the account owner is deceased, then there are [specified RMD rules](https:\/\/www.irs.gov\/retirement-plans\/retirement-plan-and-ira-required-minimum-distributions-faqs) for that).\n\nYou can take out more than your required RMD, but not less, and all withdrawals will be taxed at your income level unless the funds were previously taxed, as with Roth accounts. If you fail to take out your RMDs, you might be subject to an excise tax of 25%.\n\nThe amount you owe changes each year and is based on the amount of money in your accounts and your life expectancy factors.\n\n### How To Avoid 401(k) Early Withdrawal Penalties\nThe pros and cons of early withdrawal are often underestimated.\n\nWithdrawing funds from the 401(k) plan before age 59½ typically triggers both an income tax event and a [10% early withdrawal penalty](https:\/\/www.forbes.com\/advisor\/retirement\/401k-early-withdrawal\/).\n\n**Related link:** [401(k) early withdrawal calculator](https:\/\/www.forbes.com\/advisor\/retirement\/401k-early-distribution-calculator\/)\n\nIf you need to withdraw from your retirement accounts before you turn 59 ½, there are some qualified ways to do so without paying the penalty. But it depends on the type of retirement plan. In some cases, you can take out money penalty-free to pay for:\n\n- Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income\n- Qualified distributions to military reservists called up for active duty\n- Total and permanent disability\n- Birth or adoption expenses, with distributions up to \\$5,000 per child\n- Up to \\$22,000 for those who sustain economic loss during a federally declared disaster\n### 401(k) Loans\nYou can borrow money from your 401(k) account and repay it like any other loan. But if you don’t repay the loan, then you’ll have to pay the early withdrawal penalties (if you’re under 59 ½), and the loan balance will be a taxable distribution.\n\n## What Happens to Your 401(k) When You Change Jobs?\nWhen you change jobs, your 401(k) can easily follow, or not. If you have enough money vested in your account, you can roll your plan into a new one, keep your old one or cash it out.\n\n### Leave Your 401(k) with Your Former Employer\nWith this option, your funds will still grow tax deferred, and you can manage your investments, but you can’t contribute any new money to the account.\n\n### Move Your 401(k) to Your New Employer’s Plan\nIt’s hard to manage more than one retirement plan. Rolling your account over to your new employer’s retirement plan might be a good option. This transaction can be as easy as your previous retirement plan sponsor, mailing a check to the new one.\n\n### Roll Your 401(k) Balance Into IRA\nIf you want a more varied choice in investments, you can open your own IRA and roll your retirement funds into it. This option allows you to continue contributing earned income into your account and still take advantage of the tax benefits.\n\nExplore the Best 401(k) Plans\n\n[Learn More](https:\/\/www.forbes.com\/advisor\/retirement\/best-401k-plans\/%20)\n## Frequently Asked Questions (FAQs)\n### What is the difference between a Traditional 401(k) and a Roth 401(k)?\nIn a traditional 401(k), income taxes on contributions and earnings are deferred. With a Roth 401(k), you pay taxes before your contribution goes in and are withdrawn tax-free once you hit retirement.\n\n### What is the smartest way to withdraw from a 401(k)?\nIt depends on your financial situation.\n\nIf you need to withdraw before age 59 ½, borrowing money with a 401(k) loan will avoid the 10% tax penalty. Otherwise, it’s best to leave your 401(k) untouched until you reach retirement age, according to financial experts.\n\n### At what age is a 401(k) withdrawal tax-free?\nTraditional 401(k) withdrawals are never tax-free. It’s only qualified withdrawals from a Roth 401(k) that are tax-free after age 59½.\n***\n\nWas this article helpful?\n\nShare your feedback\n\nSend feedback to the editorial team\n\n![User Form](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/user-feedback-form\/user-form-icon.svg)\n\n![Success Icon](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/user-feedback-form\/success-icon.svg)\n\nThank You for your feedback\\!\n\n![Error Icon](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/user-feedback-form\/error-icon.svg)\n\nSomething went wrong. Please try again later.\n\nBasics\n\n- [What Is A Roth 401(k)](https:\/\/www.forbes.com\/advisor\/retirement\/what-is-roth-401k\/ \"What Is A Roth 401(k)\")\n- [What Is An Annuity](https:\/\/www.forbes.com\/advisor\/retirement\/what-is-an-annuity\/ \"What Is An Annuity\")\n\nGuides\n\n- [How To Save For Retirement](https:\/\/www.forbes.com\/advisor\/retirement\/how-to-save-for-retirement\/ \"How To Save For Retirement \")\n- [401(k) Early Withdrawal](https:\/\/www.forbes.com\/advisor\/retirement\/401k-early-withdrawal\/ \"401(k) Early Withdrawal\")\n- [How To Roll Over Your 401(k) To An IRA](https:\/\/www.forbes.com\/advisor\/retirement\/401k-to-ira-rollover\/ \"How To Roll Over Your 401(k) To An IRA\")\n\nRecommended Reading\n\n- [Traditional IRA Calculator](https:\/\/www.forbes.com\/advisor\/retirement\/traditional-ira-calculator\/ \"Traditional IRA Calculator\")\n- [Roth IRA Calculator](https:\/\/www.forbes.com\/advisor\/retirement\/roth-ira-calculator\/ \"Roth IRA Calculator\")\n- [Financial Advisors: How To Choose](https:\/\/www.forbes.com\/advisor\/investing\/how-to-choose-a-financial-advisor\/ \"Financial Advisors: How To Choose\")\n\n### Next Up In Retirement\n- [7 Best 401(k) Plans](https:\/\/www.forbes.com\/advisor\/retirement\/best-401k-plans\/ \"7 Best 401(k) Plans\")\n- [Individual Retirement Accounts (IRAs)](https:\/\/www.forbes.com\/advisor\/retirement\/ira-individual-retirement-account\/ \"Individual Retirement Accounts (IRAs)\")\n- [What Is A Roth 401(k)](https:\/\/www.forbes.com\/advisor\/retirement\/what-is-roth-401k\/ \"What Is A Roth 401(k)\")\n\n#### More from  ![forbes-advisor](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/forbes-updated-logo.svg)\n[![Best Roth IRA Accounts Of 2026](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/01\/best-roth-ira-accounts-568x322.jpg) Best Roth IRA Accounts Of 2026 ![Farran Powell](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot.jpeg) By **Farran Powell**](https:\/\/www.forbes.com\/advisor\/retirement\/best-roth-ira\/ \"Best Roth IRA Accounts Of 2026\")\n\n[![Best Annuity Companies Of 2026](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2023\/05\/Best_annuity-568x322.jpg) Best Annuity Companies Of 2026 ![Maisha Shahid](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2024\/11\/maisha-headshot-Maisha-Shahid-e1730783915307.jpg) By **Maisha Shahid**](https:\/\/www.forbes.com\/advisor\/retirement\/best-annuity-companies\/ \"Best Annuity Companies Of 2026\")\n\n[![Augusta Precious Metals Review](https:\/\/www.forbes.com\/advisor\/wp-content\/themes\/fadv\/assets\/img\/dummy-ra-image.png) Augusta Precious Metals Review ![Farran Powell](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot.jpeg) By **Farran Powell**](https:\/\/www.forbes.com\/advisor\/retirement\/augusta-precious-metals-review\/ \"Augusta Precious Metals Review\")\n\n[![Best Fidelity Mutual Funds For 2026](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/06\/fidelity_logo-568x322.jpeg) Best Fidelity Mutual Funds For 2026 ![Alora Bopray](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora.png) By **Alora Bopray**](https:\/\/www.forbes.com\/advisor\/retirement\/best-fidelity-mutual-funds\/ \"Best Fidelity Mutual Funds For 2026\")\n\n[![9 Best Retirement Income Funds](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/01\/best-retirement-income-funds-568x322.jpg) 9 Best Retirement Income Funds ![Alora Bopray](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora.png) By **Alora Bopray**](https:\/\/www.forbes.com\/advisor\/retirement\/best-retirement-income-funds\/ \"9 Best Retirement Income Funds\")\n\n[![Best Vanguard Mutual Funds](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/05\/best_vanguard_mutual_funds.jpeg-568x322.jpg) Best Vanguard Mutual Funds ![Farran Powell](https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2022\/04\/Farran-Powell_headshot.jpeg) By **Farran Powell**](https:\/\/www.forbes.com\/advisor\/retirement\/best-vanguard-mutual-funds\/ \"Best Vanguard Mutual Funds\")\n\n[![Alora Bopray](https:\/\/thumbor.forbes.com\/thumbor\/fit-in\/x\/https:\/\/www.forbes.com\/advisor\/wp-content\/uploads\/2025\/07\/Alora-88x88.png)](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/ \"Alora Bopray\")\n\n[Alora Bopray](https:\/\/www.forbes.com\/advisor\/author\/alora-bopray\/)\n\nStaff Writer\n\n© 2026 Forbes Media LLC. 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While we work hard to provide accurate and up to date information that we think you will find relevant, Forbes Advisor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Here is a list of our [partners](https:\/\/www.forbes.com\/advisor\/advertiser-disclosure\/) who offer products that we have affiliate links for.","attrs_readable_markdown":"As an employer-sponsored retirement savings plan, the 401(k) is commonly offered as part of a job benefits package.\n\nWith this retirement account, you choose to put aside a percentage of each paycheck and watch as your money grows tax deferred.\n\nA 401(k) is a voluntary—often employer-sponsored—retirement savings plan that lets you contribute a portion of your paycheck before or after it’s taxed.\n\nWhen you sign up for your employer’s 401(k) plan, you agree to have a percentage of each paycheck directly deposited into your 401(k) account. Your employer may also deposit money into your account by matching some or all of your contributions.\n\nThe money is then invested into mutual funds, [exchange-traded funds](https:\/\/www.forbes.com\/advisor\/investing\/best-etfs\/) (ETFs), target-date funds, index funds, [money market funds](https:\/\/www.forbes.com\/advisor\/investing\/the-best-money-market-mutual-funds\/) and individual stocks, to name a few investment examples.\n\nUnless you meet certain criteria, a 401(k) remains untouched until you reach the retirement age of 59½.\n\n**Related:** [Best 401(k) Plans](https:\/\/www.forbes.com\/advisor\/retirement\/best-401k-plans\/)\n\n### What Is a Traditional 401(k)?\nA traditional 401(k) is not taxed when it goes into the account, but taxed at a normal income rate when distributed during retirement. With this type of retirement account, contributions are taken out of your paycheck before income taxes are calculated, meaning contributions help lower your taxable income.\n\n### What Is a Roth 401(k)?\nWith a [Roth 401(k)](https:\/\/www.forbes.com\/advisor\/retirement\/what-is-roth-401k\/), contributions are made after you pay income taxes. There’s no upfront tax break. You don’t pay taxes on the money you take out of your account after retirement.\n\n## Pros and Cons of a 401(k)\nA 401(k) comes with several advantages that make it one of the most powerful ways to save for retirement. As Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, says, “The biggest advantage of a 401(k) is forced savings discipline for an investor—you’re saving money for retirement before any money hits your checking account.”\n\nThis automatic saving, combined with the tax benefits of pretax contributions, means your money grows more efficiently than it would in a taxable account. In addition, many employers offer a matching contribution, which Yoshida calls “essentially free money,” making participation a “no-brainer” if it’s available.\n\n**Pros of a 401(k):**\n\n- Pretax contributions reduce taxable income\n- Employer match\n- Higher contribution limits compared to IRAs\n- Regimented way to save for retirement\n- Tax-deferred growth for more efficient compounding\n- Options for loans and hardship withdrawals\n- Dollar-cost averaging through payroll deductions\n\nBut 401(k)s also come with drawbacks worth considering.\n\n“Cons of a 401(k) include limited investment choices, vesting rules and possible fees,” says Bethany Dever, vice president and relationship manager at Rockland Trust, a commercial bank headquartered in Massachusetts.\n\nWhen compared to alternative savings options, 401(k)s have a limited investment menu. You can still choose your investments, but it all depends on the options your company has chosen.\n\n**Cons of a 401(k):**\n\n- Limited investment options compared to [individual retirement accounts](https:\/\/www.forbes.com\/advisor\/retirement\/best-ira-accounts\/) (IRAs) or [brokerage accounts](https:\/\/www.forbes.com\/advisor\/investing\/best-online-brokers\/)\n- Possible high administrative or fund fees\n- Penalties for early withdrawals (before age 59 ½, in most cases)\n- Vesting schedules that delay ownership of employer contributions\n- Less flexibility than other investment accounts\n## 401(k) Contributions\nYou have full control over how much of your income you contribute to your 401(k) account each year, if you stay within the IRS limits.\n\nWhen you start a new job, you elect to save a percentage of your annual salary. You can adjust the amount you contribute up or down as often as the rules of the plan allow. Unlike health insurance, where you enroll once per year, you can halt your contributions at any time.\n\nDepending on your employer’s plan, you may be automatically enrolled in a 401(k) plan unless you choose to opt out of the plan. For others, you may need to actively choose to enroll in a plan or opt out.\n\n## Annual 401(k) Contribution Limits\nThere is an annual limit to how much you can contribute to your 401(k) accounts. In 2026, the 401(k)contribution limit for those under 50 is \\$24,500, up from \\$23,500 in 2025.\n\nIf you are age 50 or older, you are eligible for additional catch-up contributions of \\$8,000.\n\nThere is an [additional 401(k) catch-up](https:\/\/www.forbes.com\/advisor\/retirement\/401k-catch-up-contributions\/) amount for employees ages 60, 61, 62 or 63. If your plan allows, you can contribute up to \\$11,250.\n\n### 401(k) Contribution Limits 2025\n| Type of Contribution | 2024 Limit | 2025 Limit | 2026 Limit |\n|---|---|---|---|\n| Maximum Employee Contribution | \\$23,000 | \\$23,500 | \\$24,500 |\n| Catch-Up Contributions for those 50 or Older | \\$7,500 | \\$7,500 | \\$8,000 |\n| Catch-Up Contributions (in place of \\$7,500) for those 60-63 | n\/a | \\$11,250 | \\$11,250 |\n## What Is a 401(k) Matching Contribution?\nAs part of a benefits package, some employers will match a certain percentage of pay, should you decide to put money aside into your employer-sponsored 401(k).\n\nAccording to Vanguard’s [2025 industry report](https:\/\/institutional.vanguard.com\/content\/dam\/inst\/iig-transformation\/insights\/pdf\/2025\/has\/2025_How_America_Saves.pdf), the average employer match is 4.6% of annual pay.\n\nBut some employers will match up to 6%. Other companies follow a formula that matches \\$0.50 for every dollar an employee contributes up to a certain percentage of their salary.\n\nWhen starting a new job, ask whether your employer provides matching 401(k) contributions, and how much you need to contribute to maximize the match.\n\nPro Tip\n\nYou should set your contribution level to obtain the full match; otherwise, you’re missing out on free money.\n## How Do Employer 401(k) Matching Contributions Work?\nEmployer matching contributions are typically straightforward, except when vesting comes into play (more on that below).\n\nIf your salary is \\$60,000 and your employer offers a dollar-for-dollar match up to 5% of your annual pay, you could contribute \\$3,000. For that contribution, your employer would also contribute \\$3,000. That’s \\$6,000 going into your 401(k) each year—double the amount you put in.\n\nIf instead your employer uses a \\$0.50-on-the-dollar match up to 6%, and you contribute \\$3,600, the company would add \\$1,800. Together, that’s \\$5,400 invested toward your retirement.\n\nIf you plan to stay with your company long-term, you can [easily calculate your 401(k) savings](https:\/\/www.forbes.com\/advisor\/retirement\/401k-calculator\/).\n\n### Annual Limits for an Employer’s 401(k) Match\nSimilar to how you are limited in how much money you can contribute to your 401(k), employers are also limited.\n\nIn 2025, the combined employer and employee contributions are \\$70,000 for those under 50. If you are 50 or older, catch-up contributions increase your combined limit to \\$77,500 or \\$81,250 if you are between the ages of 60 and 63.\n\n| Contribution Type | 2024 Limit | 2025 Limit |\n|---|---|---|\n| 401(k) Employee & Employer Contributions | \\$69,000 | \\$70,000 |\n| Total with Catch-Up Contributions for those 50 or Older | \\$76,500 | \\$77,500 |\n| Catch-Up Contributions (in place of \\$7,500) for those 60-63 | n\/a | \\$81,250 |\n### 401(k) Matching Contributions and Vesting\nSome employers grant 401(k) matching contributions that “vest” over time. That means the money your employer matches doesn’t become fully yours until you meet certain criteria. This vesting schedule is typically put in place to encourage employees to remain with the company long term.\n\nUnder a vesting schedule, you gradually take ownership of your employer’s matching contributions over several years. If you remain with the company for their set vesting period, you are said to be “fully vested” in your 401(k) and have ownership over all contributions made to your retirement account.\n\n**Example:** Let’s say your employer’s contributions become 50% vested after you’ve worked for the company for two years, but you become fully vested after five years. If you were to leave the company and take a new job after only three years, you would only get half of the contributions your employer pledged to your account.\n\nPro Tip\n\nYour contributions are always 100% yours; vesting only applies to employer matching contributions.\n## IRA vs. 401(k)\nThe main difference between an IRA and a 401(k) is that an IRA is a personal retirement account, and a traditional 401(k) is an employer-sponsored 401(k) with much higher annual contribution limits than IRAs, which is ideal for anyone in a high tax bracket who wants to lower their taxable income.\n\nFor instance, for the 2026 tax year, the annual 401(k) contribution limit for those under age 50 is \\$24,500, but only \\$7,500 for an IRA.\n\nIRAs are much more flexible than a 401(k). You get to choose which online brokerage to use for your IRA, which can give you access to benefits like robo-advisors, personalized customer service and others.\n\nWith a 401(k), employers often pick and choose which types of investments you can make. IRAs, on the other hand, have many options for you to choose from.\n\n### Comparing a Traditional 401(k) vs. Traditional IRA\n| Characteristic | Traditional 401(k) | Traditional IRA |\n|---|---|---|\n| Managed by | Employer\/plan administrator | You |\n| Contribution limits | Higher than IRAs | Lower |\n| Investment options | Selection chosen by employer | Wide range of options |\n| Employer contributions | Matches depend on employer, but may be up to 6% of your income | Not applicable |\n| Flexibility | Tied to the employer | Not tied to an employer |\n## Choosing Investments for Your 401(k)\nYour personal timeline matters and may be one of the key factors to consider when choosing how to invest your money. “The longer you have until retirement, the more aggressive you can be,” Dever says. “If your plan offers target date funds or allocation funds, these are great ‘set it and forget it’ options.” But if you are getting closer to retirement age, your financial advisor may offer different advice.\n\nMost 401(k) plans offer a mix of options that range from conservative bond funds to aggressive stock funds. The right choice depends on your financial goals, risk tolerance and time left until retirement.\n\nThe typical employer-sponsored plan provides a selection of [mutual funds](https:\/\/www.forbes.com\/advisor\/investing\/best-mutual-funds\/), index funds and exchange-traded funds for you to choose from.\n\nYou might choose to stick with the default option—typically a target-date fund with a mix of stocks and bonds—or, if your plan allows, be pickier about where you invest your money.\n\nYou have full control over how much of your 401(k) balance to invest in different funds. You could opt to invest 70% of your balance in a target-date fund, 20% in a bond index fund and 10% in an equity index fund, for example.\n\n## How Do You Start a 401(k)?\nThe easiest way to start a 401(k) is to go through your employer and enroll in their sponsored plan. If your company doesn’t offer 401(k) plans or you’re self-employed, you can set up your own plan through an online broker.\n\nOnce you sign up, all you need to do is:\n\n1. Set your contribution rate\n2. Choose your contribution type, like a Roth or traditional 401(k)\n3. Select the type of investments you’d like to make (many plans have a default option, while others give you more control over where your money goes)\n\nThose who are self-employed may have additional steps, like getting an employer identification number from the IRS and choosing the online brokerage you’d like to invest with.\n\n## How To Withdraw Funds From a 401(k)\nWhen you reach retirement age of 59 ½, you can take as much money out of your retirement plan as you want. That said, be prepared to pay income taxes on that amount unless you have qualified withdrawals from Roth 401(k) accounts because you’ve already footed the tax bill on those.\n\nTraditional 401(k) plans are taxed as ordinary income when you make a qualified withdrawal.\n\nOnce you reach the age of 73, you must take out a required minimum amount of money (RMDs) from your retirement account each year.\n\nIf you withdraw money from your 401(k) too early, you might have to pay a penalty on top of tax on the distribution.\n\n### How Do 401(k) RMDs Work?\nRMDs are the minimum amount you are required to take out of your retirement accounts each year.\n\nRMDs kick in when you turn 73, and apply to any traditional IRA, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA and retirement accounts that are not Roth IRAs (unless the account owner is deceased, then there are [specified RMD rules](https:\/\/www.irs.gov\/retirement-plans\/retirement-plan-and-ira-required-minimum-distributions-faqs) for that).\n\nYou can take out more than your required RMD, but not less, and all withdrawals will be taxed at your income level unless the funds were previously taxed, as with Roth accounts. If you fail to take out your RMDs, you might be subject to an excise tax of 25%.\n\nThe amount you owe changes each year and is based on the amount of money in your accounts and your life expectancy factors.\n\n### How To Avoid 401(k) Early Withdrawal Penalties\nThe pros and cons of early withdrawal are often underestimated.\n\nWithdrawing funds from the 401(k) plan before age 59½ typically triggers both an income tax event and a [10% early withdrawal penalty](https:\/\/www.forbes.com\/advisor\/retirement\/401k-early-withdrawal\/).\n\n**Related link:** [401(k) early withdrawal calculator](https:\/\/www.forbes.com\/advisor\/retirement\/401k-early-distribution-calculator\/)\n\nIf you need to withdraw from your retirement accounts before you turn 59 ½, there are some qualified ways to do so without paying the penalty. But it depends on the type of retirement plan. In some cases, you can take out money penalty-free to pay for:\n\n- Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income\n- Qualified distributions to military reservists called up for active duty\n- Total and permanent disability\n- Birth or adoption expenses, with distributions up to \\$5,000 per child\n- Up to \\$22,000 for those who sustain economic loss during a federally declared disaster\n### 401(k) Loans\nYou can borrow money from your 401(k) account and repay it like any other loan. But if you don’t repay the loan, then you’ll have to pay the early withdrawal penalties (if you’re under 59 ½), and the loan balance will be a taxable distribution.\n\n## What Happens to Your 401(k) When You Change Jobs?\nWhen you change jobs, your 401(k) can easily follow, or not. If you have enough money vested in your account, you can roll your plan into a new one, keep your old one or cash it out.\n\n### Leave Your 401(k) with Your Former Employer\nWith this option, your funds will still grow tax deferred, and you can manage your investments, but you can’t contribute any new money to the account.\n\n### Move Your 401(k) to Your New Employer’s Plan\nIt’s hard to manage more than one retirement plan. Rolling your account over to your new employer’s retirement plan might be a good option. This transaction can be as easy as your previous retirement plan sponsor, mailing a check to the new one.\n\n### Roll Your 401(k) Balance Into IRA\nIf you want a more varied choice in investments, you can open your own IRA and roll your retirement funds into it. This option allows you to continue contributing earned income into your account and still take advantage of the tax benefits.\n\nExplore the Best 401(k) Plans\n\n## Frequently Asked Questions (FAQs)\nIn a traditional 401(k), income taxes on contributions and earnings are deferred. With a Roth 401(k), you pay taxes before your contribution goes in and are withdrawn tax-free once you hit retirement.\n\nIt depends on your financial situation.\n\nIf you need to withdraw before age 59 ½, borrowing money with a 401(k) loan will avoid the 10% tax penalty. Otherwise, it’s best to leave your 401(k) untouched until you reach retirement age, according to financial experts.\n\nTraditional 401(k) withdrawals are never tax-free. It’s only qualified withdrawals from a Roth 401(k) that are tax-free after age 59½.\n***","meta_canonical":null}

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Boilerpipe Text	As an employer-sponsored retirement savings plan, the 401(k) is commonly offered as part of a job benefits package. With this retirement account, you choose to put aside a percentage of each paycheck and watch as your money grows tax deferred. A 401(k) is a voluntary—often employer-sponsored—retirement savings plan that lets you contribute a portion of your paycheck before or after it’s taxed. When you sign up for your employer’s 401(k) plan, you agree to have a percentage of each paycheck directly deposited into your 401(k) account. Your employer may also deposit money into your account by matching some or all of your contributions. The money is then invested into mutual funds, exchange-traded funds (ETFs), target-date funds, index funds, money market funds and individual stocks, to name a few investment examples. Unless you meet certain criteria, a 401(k) remains untouched until you reach the retirement age of 59½. Related: Best 401(k) Plans What Is a Traditional 401(k)? A traditional 401(k) is not taxed when it goes into the account, but taxed at a normal income rate when distributed during retirement. With this type of retirement account, contributions are taken out of your paycheck before income taxes are calculated, meaning contributions help lower your taxable income. What Is a Roth 401(k)? With a Roth 401(k) , contributions are made after you pay income taxes. There’s no upfront tax break. You don’t pay taxes on the money you take out of your account after retirement. Pros and Cons of a 401(k) A 401(k) comes with several advantages that make it one of the most powerful ways to save for retirement. As Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, says, “The biggest advantage of a 401(k) is forced savings discipline for an investor—you’re saving money for retirement before any money hits your checking account.” This automatic saving, combined with the tax benefits of pretax contributions, means your money grows more efficiently than it would in a taxable account. In addition, many employers offer a matching contribution, which Yoshida calls “essentially free money,” making participation a “no-brainer” if it’s available. Pros of a 401(k): Pretax contributions reduce taxable income Employer match Higher contribution limits compared to IRAs Regimented way to save for retirement Tax-deferred growth for more efficient compounding Options for loans and hardship withdrawals Dollar-cost averaging through payroll deductions But 401(k)s also come with drawbacks worth considering. “Cons of a 401(k) include limited investment choices, vesting rules and possible fees,” says Bethany Dever, vice president and relationship manager at Rockland Trust, a commercial bank headquartered in Massachusetts. When compared to alternative savings options, 401(k)s have a limited investment menu. You can still choose your investments, but it all depends on the options your company has chosen. Cons of a 401(k): Limited investment options compared to individual retirement accounts (IRAs) or brokerage accounts Possible high administrative or fund fees Penalties for early withdrawals (before age 59 ½, in most cases) Vesting schedules that delay ownership of employer contributions Less flexibility than other investment accounts 401(k) Contributions You have full control over how much of your income you contribute to your 401(k) account each year, if you stay within the IRS limits. When you start a new job, you elect to save a percentage of your annual salary. You can adjust the amount you contribute up or down as often as the rules of the plan allow. Unlike health insurance, where you enroll once per year, you can halt your contributions at any time. Depending on your employer’s plan, you may be automatically enrolled in a 401(k) plan unless you choose to opt out of the plan. For others, you may need to actively choose to enroll in a plan or opt out. Annual 401(k) Contribution Limits There is an annual limit to how much you can contribute to your 401(k) accounts. In 2026, the 401(k)contribution limit for those under 50 is $24,500, up from $23,500 in 2025. If you are age 50 or older, you are eligible for additional catch-up contributions of $8,000. There is an additional 401(k) catch-up amount for employees ages 60, 61, 62 or 63. If your plan allows, you can contribute up to $11,250. 401(k) Contribution Limits 2025 Type of Contribution 2024 Limit 2025 Limit 2026 Limit Maximum Employee Contribution $23,000 $23,500 $24,500 Catch-Up Contributions for those 50 or Older $7,500 $7,500 $8,000 Catch-Up Contributions (in place of $7,500) for those 60-63 n/a $11,250 $11,250 What Is a 401(k) Matching Contribution? As part of a benefits package, some employers will match a certain percentage of pay, should you decide to put money aside into your employer-sponsored 401(k). According to Vanguard’s 2025 industry report , the average employer match is 4.6% of annual pay. But some employers will match up to 6%. Other companies follow a formula that matches $0.50 for every dollar an employee contributes up to a certain percentage of their salary. When starting a new job, ask whether your employer provides matching 401(k) contributions, and how much you need to contribute to maximize the match. Pro Tip You should set your contribution level to obtain the full match; otherwise, you’re missing out on free money. How Do Employer 401(k) Matching Contributions Work? Employer matching contributions are typically straightforward, except when vesting comes into play (more on that below). If your salary is $60,000 and your employer offers a dollar-for-dollar match up to 5% of your annual pay, you could contribute $3,000. For that contribution, your employer would also contribute $3,000. That’s $6,000 going into your 401(k) each year—double the amount you put in. If instead your employer uses a $0.50-on-the-dollar match up to 6%, and you contribute $3,600, the company would add $1,800. Together, that’s $5,400 invested toward your retirement. If you plan to stay with your company long-term, you can easily calculate your 401(k) savings . Annual Limits for an Employer’s 401(k) Match Similar to how you are limited in how much money you can contribute to your 401(k), employers are also limited. In 2025, the combined employer and employee contributions are $70,000 for those under 50. If you are 50 or older, catch-up contributions increase your combined limit to $77,500 or $81,250 if you are between the ages of 60 and 63. Contribution Type 2024 Limit 2025 Limit 401(k) Employee & Employer Contributions $69,000 $70,000 Total with Catch-Up Contributions for those 50 or Older $76,500 $77,500 Catch-Up Contributions (in place of $7,500) for those 60-63 n/a $81,250 401(k) Matching Contributions and Vesting Some employers grant 401(k) matching contributions that “vest” over time. That means the money your employer matches doesn’t become fully yours until you meet certain criteria. This vesting schedule is typically put in place to encourage employees to remain with the company long term. Under a vesting schedule, you gradually take ownership of your employer’s matching contributions over several years. If you remain with the company for their set vesting period, you are said to be “fully vested” in your 401(k) and have ownership over all contributions made to your retirement account. Example: Let’s say your employer’s contributions become 50% vested after you’ve worked for the company for two years, but you become fully vested after five years. If you were to leave the company and take a new job after only three years, you would only get half of the contributions your employer pledged to your account. Pro Tip Your contributions are always 100% yours; vesting only applies to employer matching contributions. IRA vs. 401(k) The main difference between an IRA and a 401(k) is that an IRA is a personal retirement account, and a traditional 401(k) is an employer-sponsored 401(k) with much higher annual contribution limits than IRAs, which is ideal for anyone in a high tax bracket who wants to lower their taxable income. For instance, for the 2026 tax year, the annual 401(k) contribution limit for those under age 50 is $24,500, but only $7,500 for an IRA. IRAs are much more flexible than a 401(k). You get to choose which online brokerage to use for your IRA, which can give you access to benefits like robo-advisors, personalized customer service and others. With a 401(k), employers often pick and choose which types of investments you can make. IRAs, on the other hand, have many options for you to choose from. Comparing a Traditional 401(k) vs. Traditional IRA Characteristic Traditional 401(k) Traditional IRA Managed by Employer/plan administrator You Contribution limits Higher than IRAs Lower Investment options Selection chosen by employer Wide range of options Employer contributions Matches depend on employer, but may be up to 6% of your income Not applicable Flexibility Tied to the employer Not tied to an employer Choosing Investments for Your 401(k) Your personal timeline matters and may be one of the key factors to consider when choosing how to invest your money. “The longer you have until retirement, the more aggressive you can be,” Dever says. “If your plan offers target date funds or allocation funds, these are great ‘set it and forget it’ options.” But if you are getting closer to retirement age, your financial advisor may offer different advice. Most 401(k) plans offer a mix of options that range from conservative bond funds to aggressive stock funds. The right choice depends on your financial goals, risk tolerance and time left until retirement. The typical employer-sponsored plan provides a selection of mutual funds , index funds and exchange-traded funds for you to choose from. You might choose to stick with the default option—typically a target-date fund with a mix of stocks and bonds—or, if your plan allows, be pickier about where you invest your money. You have full control over how much of your 401(k) balance to invest in different funds. You could opt to invest 70% of your balance in a target-date fund, 20% in a bond index fund and 10% in an equity index fund, for example. How Do You Start a 401(k)? The easiest way to start a 401(k) is to go through your employer and enroll in their sponsored plan. If your company doesn’t offer 401(k) plans or you’re self-employed, you can set up your own plan through an online broker. Once you sign up, all you need to do is: Set your contribution rate Choose your contribution type, like a Roth or traditional 401(k) Select the type of investments you’d like to make (many plans have a default option, while others give you more control over where your money goes) Those who are self-employed may have additional steps, like getting an employer identification number from the IRS and choosing the online brokerage you’d like to invest with. How To Withdraw Funds From a 401(k) When you reach retirement age of 59 ½, you can take as much money out of your retirement plan as you want. That said, be prepared to pay income taxes on that amount unless you have qualified withdrawals from Roth 401(k) accounts because you’ve already footed the tax bill on those. Traditional 401(k) plans are taxed as ordinary income when you make a qualified withdrawal. Once you reach the age of 73, you must take out a required minimum amount of money (RMDs) from your retirement account each year. If you withdraw money from your 401(k) too early, you might have to pay a penalty on top of tax on the distribution. How Do 401(k) RMDs Work? RMDs are the minimum amount you are required to take out of your retirement accounts each year. RMDs kick in when you turn 73, and apply to any traditional IRA, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA and retirement accounts that are not Roth IRAs (unless the account owner is deceased, then there are specified RMD rules for that). You can take out more than your required RMD, but not less, and all withdrawals will be taxed at your income level unless the funds were previously taxed, as with Roth accounts. If you fail to take out your RMDs, you might be subject to an excise tax of 25%. The amount you owe changes each year and is based on the amount of money in your accounts and your life expectancy factors. How To Avoid 401(k) Early Withdrawal Penalties The pros and cons of early withdrawal are often underestimated. Withdrawing funds from the 401(k) plan before age 59½ typically triggers both an income tax event and a 10% early withdrawal penalty . Related link: 401(k) early withdrawal calculator If you need to withdraw from your retirement accounts before you turn 59 ½, there are some qualified ways to do so without paying the penalty. But it depends on the type of retirement plan. In some cases, you can take out money penalty-free to pay for: Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income Qualified distributions to military reservists called up for active duty Total and permanent disability Birth or adoption expenses, with distributions up to $5,000 per child Up to $22,000 for those who sustain economic loss during a federally declared disaster 401(k) Loans You can borrow money from your 401(k) account and repay it like any other loan. But if you don’t repay the loan, then you’ll have to pay the early withdrawal penalties (if you’re under 59 ½), and the loan balance will be a taxable distribution. What Happens to Your 401(k) When You Change Jobs? When you change jobs, your 401(k) can easily follow, or not. If you have enough money vested in your account, you can roll your plan into a new one, keep your old one or cash it out. Leave Your 401(k) with Your Former Employer With this option, your funds will still grow tax deferred, and you can manage your investments, but you can’t contribute any new money to the account. Move Your 401(k) to Your New Employer’s Plan It’s hard to manage more than one retirement plan. Rolling your account over to your new employer’s retirement plan might be a good option. This transaction can be as easy as your previous retirement plan sponsor, mailing a check to the new one. Roll Your 401(k) Balance Into IRA If you want a more varied choice in investments, you can open your own IRA and roll your retirement funds into it. This option allows you to continue contributing earned income into your account and still take advantage of the tax benefits. Explore the Best 401(k) Plans Frequently Asked Questions (FAQs) In a traditional 401(k), income taxes on contributions and earnings are deferred. With a Roth 401(k), you pay taxes before your contribution goes in and are withdrawn tax-free once you hit retirement. It depends on your financial situation. If you need to withdraw before age 59 ½, borrowing money with a 401(k) loan will avoid the 10% tax penalty. Otherwise, it’s best to leave your 401(k) untouched until you reach retirement age, according to financial experts. Traditional 401(k) withdrawals are never tax-free. It’s only qualified withdrawals from a Roth 401(k) that are tax-free after age 59½.
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She was previously the assistant managing editor of investing at U.S. News & World Report. Her work has appeared in numerous publications including TheStreet, Mansion Global, CN... [Read Full Bio![See Full Bio](https://www.forbes.com/advisor/wp-content/themes/fadv/assets/img/social-icons/read-full-bio.svg)](https://www.forbes.com/advisor/author/fpowell/) ![close icon](https://www.forbes.com/advisor/wp-content/themes/fadv/assets/img/social-icons/forbes-media-close-icon.svg) ![Farran Powell](https://thumbor.forbes.com/thumbor/fit-in/x/https://www.forbes.com/advisor/wp-content/uploads/2022/04/Farran-Powell_headshot-88x88.jpeg) Fact Checked by [Farran Powell](https://www.forbes.com/advisor/author/fpowell/)Staff Editor Farran Powell is the managing editor of investing at Forbes Advisor. She was previously the assistant managing editor of investing at U.S. News & World Report. Her work has appeared in numerous publications including TheStreet, Mansion Global, CN... 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How Does It Work?](https://thumbor.forbes.com/thumbor/fit-in/900x510/https://www.forbes.com/advisor/wp-content/uploads/2025/10/401k.jpg) Getty As an employer-sponsored retirement savings plan, the 401(k) is commonly offered as part of a job benefits package. With this retirement account, you choose to put aside a percentage of each paycheck and watch as your money grows tax deferred. ## What Is a 401(k)? A 401(k) is a voluntary—often employer-sponsored—retirement savings plan that lets you contribute a portion of your paycheck before or after it’s taxed. When you sign up for your employer’s 401(k) plan, you agree to have a percentage of each paycheck directly deposited into your 401(k) account. Your employer may also deposit money into your account by matching some or all of your contributions. The money is then invested into mutual funds, [exchange-traded funds](https://www.forbes.com/advisor/investing/best-etfs/) (ETFs), target-date funds, index funds, [money market funds](https://www.forbes.com/advisor/investing/the-best-money-market-mutual-funds/) and individual stocks, to name a few investment examples. Unless you meet certain criteria, a 401(k) remains untouched until you reach the retirement age of 59½. Related: [Best 401(k) Plans](https://www.forbes.com/advisor/retirement/best-401k-plans/) ### What Is a Traditional 401(k)? A traditional 401(k) is not taxed when it goes into the account, but taxed at a normal income rate when distributed during retirement. With this type of retirement account, contributions are taken out of your paycheck before income taxes are calculated, meaning contributions help lower your taxable income. ### What Is a Roth 401(k)? With a [Roth 401(k)](https://www.forbes.com/advisor/retirement/what-is-roth-401k/), contributions are made after you pay income taxes. There’s no upfront tax break. You don’t pay taxes on the money you take out of your account after retirement. ## Pros and Cons of a 401(k) A 401(k) comes with several advantages that make it one of the most powerful ways to save for retirement. As Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, says, “The biggest advantage of a 401(k) is forced savings discipline for an investor—you’re saving money for retirement before any money hits your checking account.” This automatic saving, combined with the tax benefits of pretax contributions, means your money grows more efficiently than it would in a taxable account. In addition, many employers offer a matching contribution, which Yoshida calls “essentially free money,” making participation a “no-brainer” if it’s available. Pros of a 401(k): - Pretax contributions reduce taxable income - Employer match - Higher contribution limits compared to IRAs - Regimented way to save for retirement - Tax-deferred growth for more efficient compounding - Options for loans and hardship withdrawals - Dollar-cost averaging through payroll deductions But 401(k)s also come with drawbacks worth considering. “Cons of a 401(k) include limited investment choices, vesting rules and possible fees,” says Bethany Dever, vice president and relationship manager at Rockland Trust, a commercial bank headquartered in Massachusetts. When compared to alternative savings options, 401(k)s have a limited investment menu. You can still choose your investments, but it all depends on the options your company has chosen. Cons of a 401(k): - Limited investment options compared to [individual retirement accounts](https://www.forbes.com/advisor/retirement/best-ira-accounts/) (IRAs) or [brokerage accounts](https://www.forbes.com/advisor/investing/best-online-brokers/) - Possible high administrative or fund fees - Penalties for early withdrawals (before age 59 ½, in most cases) - Vesting schedules that delay ownership of employer contributions - Less flexibility than other investment accounts ## 401(k) Contributions You have full control over how much of your income you contribute to your 401(k) account each year, if you stay within the IRS limits. When you start a new job, you elect to save a percentage of your annual salary. You can adjust the amount you contribute up or down as often as the rules of the plan allow. Unlike health insurance, where you enroll once per year, you can halt your contributions at any time. Depending on your employer’s plan, you may be automatically enrolled in a 401(k) plan unless you choose to opt out of the plan. For others, you may need to actively choose to enroll in a plan or opt out. ## Annual 401(k) Contribution Limits There is an annual limit to how much you can contribute to your 401(k) accounts. In 2026, the 401(k)contribution limit for those under 50 is \$24,500, up from \$23,500 in 2025. If you are age 50 or older, you are eligible for additional catch-up contributions of \$8,000. There is an [additional 401(k) catch-up](https://www.forbes.com/advisor/retirement/401k-catch-up-contributions/) amount for employees ages 60, 61, 62 or 63. If your plan allows, you can contribute up to \$11,250. ### 401(k) Contribution Limits 2025 \| Type of Contribution \| 2024 Limit \| 2025 Limit \| 2026 Limit \| \|---\|---\|---\|---\| \| Maximum Employee Contribution \| \$23,000 \| \$23,500 \| \$24,500 \| \| Catch-Up Contributions for those 50 or Older \| \$7,500 \| \$7,500 \| \$8,000 \| \| Catch-Up Contributions (in place of \$7,500) for those 60-63 \| n/a \| \$11,250 \| \$11,250 \| ![Left Arrow](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADJSURBVHgBXZCxDcIwEEXvLrbTMgIjeAQXQB0aUiBENgAmIBswQkJJg6iQaGAF2CBskBY5wbEjWXLiwjr73f//dAijo5JiEse01Zrd2BhwgS8DIDnXcgBFjAUASltWkeY5eTBPSwcSW9ZMM3W/rr+9crY6HxEgcwCBeuD+yQFCyPsH/pePy+bj3YiCzLaNTDgDumuRlidb7o2BmpCUV2M4EAJmrqFtmHzaXAxtfAOAqRrNVRgJ+mcOFryt4dQuIR8o/ZaEoB1rWNkBtuxEvL1bUnQAAAAASUVORK5CYII=) ![Right Arrow](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADQSURBVHgBdVC5DcJAENw53pAS6AA6wAlPCAGCDLsSoAJEBXwJEDk0JrA7wCW4BMeH5GXP2MggscHenEYzNzew5rt2PVULrdNt6DoJlUY1GEsCrWp1BNZ41/oiAV7LGQPo1hrYlEmYNRLrlNVDYIuJ9/eL7WRKs7yzE4OUJTABwR7M9puPspj+9NiD4tDglGml6M8YolJchrNTh8CewCaJyr8u1plt9tc8ECTQLQ+EN4FAYJuIXf9iTwq3qimBhWDm6KnZKb9bzUpgRFrz4be+FwjJTXtIGD7JAAAAAElFTkSuQmCC) See More See Less ## What Is a 401(k) Matching Contribution? As part of a benefits package, some employers will match a certain percentage of pay, should you decide to put money aside into your employer-sponsored 401(k). According to Vanguard’s [2025 industry report](https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2025/has/2025_How_America_Saves.pdf), the average employer match is 4.6% of annual pay. But some employers will match up to 6%. Other companies follow a formula that matches \$0.50 for every dollar an employee contributes up to a certain percentage of their salary. When starting a new job, ask whether your employer provides matching 401(k) contributions, and how much you need to contribute to maximize the match. Pro Tip You should set your contribution level to obtain the full match; otherwise, you’re missing out on free money. ## How Do Employer 401(k) Matching Contributions Work? Employer matching contributions are typically straightforward, except when vesting comes into play (more on that below). If your salary is \$60,000 and your employer offers a dollar-for-dollar match up to 5% of your annual pay, you could contribute \$3,000. For that contribution, your employer would also contribute \$3,000. That’s \$6,000 going into your 401(k) each year—double the amount you put in. If instead your employer uses a \$0.50-on-the-dollar match up to 6%, and you contribute \$3,600, the company would add \$1,800. Together, that’s \$5,400 invested toward your retirement. If you plan to stay with your company long-term, you can [easily calculate your 401(k) savings](https://www.forbes.com/advisor/retirement/401k-calculator/). ### Annual Limits for an Employer’s 401(k) Match Similar to how you are limited in how much money you can contribute to your 401(k), employers are also limited. In 2025, the combined employer and employee contributions are \$70,000 for those under 50. If you are 50 or older, catch-up contributions increase your combined limit to \$77,500 or \$81,250 if you are between the ages of 60 and 63. \| Contribution Type \| 2024 Limit \| 2025 Limit \| \|---\|---\|---\| \| 401(k) Employee & Employer Contributions \| \$69,000 \| \$70,000 \| \| Total with Catch-Up Contributions for those 50 or Older \| \$76,500 \| \$77,500 \| \| Catch-Up Contributions (in place of \$7,500) for those 60-63 \| n/a \| \$81,250 \| ![Left Arrow](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADJSURBVHgBXZCxDcIwEEXvLrbTMgIjeAQXQB0aUiBENgAmIBswQkJJg6iQaGAF2CBskBY5wbEjWXLiwjr73f//dAijo5JiEse01Zrd2BhwgS8DIDnXcgBFjAUASltWkeY5eTBPSwcSW9ZMM3W/rr+9crY6HxEgcwCBeuD+yQFCyPsH/pePy+bj3YiCzLaNTDgDumuRlidb7o2BmpCUV2M4EAJmrqFtmHzaXAxtfAOAqRrNVRgJ+mcOFryt4dQuIR8o/ZaEoB1rWNkBtuxEvL1bUnQAAAAASUVORK5CYII=) ![Right Arrow](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADQSURBVHgBdVC5DcJAENw53pAS6AA6wAlPCAGCDLsSoAJEBXwJEDk0JrA7wCW4BMeH5GXP2MggscHenEYzNzew5rt2PVULrdNt6DoJlUY1GEsCrWp1BNZ41/oiAV7LGQPo1hrYlEmYNRLrlNVDYIuJ9/eL7WRKs7yzE4OUJTABwR7M9puPspj+9NiD4tDglGml6M8YolJchrNTh8CewCaJyr8u1plt9tc8ECTQLQ+EN4FAYJuIXf9iTwq3qimBhWDm6KnZKb9bzUpgRFrz4be+FwjJTXtIGD7JAAAAAElFTkSuQmCC) See More See Less ### 401(k) Matching Contributions and Vesting Some employers grant 401(k) matching contributions that “vest” over time. That means the money your employer matches doesn’t become fully yours until you meet certain criteria. This vesting schedule is typically put in place to encourage employees to remain with the company long term. Under a vesting schedule, you gradually take ownership of your employer’s matching contributions over several years. If you remain with the company for their set vesting period, you are said to be “fully vested” in your 401(k) and have ownership over all contributions made to your retirement account. Example: Let’s say your employer’s contributions become 50% vested after you’ve worked for the company for two years, but you become fully vested after five years. If you were to leave the company and take a new job after only three years, you would only get half of the contributions your employer pledged to your account. Pro Tip Your contributions are always 100% yours; vesting only applies to employer matching contributions. ## IRA vs. 401(k) The main difference between an IRA and a 401(k) is that an IRA is a personal retirement account, and a traditional 401(k) is an employer-sponsored 401(k) with much higher annual contribution limits than IRAs, which is ideal for anyone in a high tax bracket who wants to lower their taxable income. For instance, for the 2026 tax year, the annual 401(k) contribution limit for those under age 50 is \$24,500, but only \$7,500 for an IRA. IRAs are much more flexible than a 401(k). You get to choose which online brokerage to use for your IRA, which can give you access to benefits like robo-advisors, personalized customer service and others. With a 401(k), employers often pick and choose which types of investments you can make. IRAs, on the other hand, have many options for you to choose from. ### Comparing a Traditional 401(k) vs. Traditional IRA \| Characteristic \| Traditional 401(k) \| Traditional IRA \| \|---\|---\|---\| \| Managed by \| Employer/plan administrator \| You \| \| Contribution limits \| Higher than IRAs \| Lower \| \| Investment options \| Selection chosen by employer \| Wide range of options \| \| Employer contributions \| Matches depend on employer, but may be up to 6% of your income \| Not applicable \| \| Flexibility \| Tied to the employer \| Not tied to an employer \| ![Left Arrow](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADJSURBVHgBXZCxDcIwEEXvLrbTMgIjeAQXQB0aUiBENgAmIBswQkJJg6iQaGAF2CBskBY5wbEjWXLiwjr73f//dAijo5JiEse01Zrd2BhwgS8DIDnXcgBFjAUASltWkeY5eTBPSwcSW9ZMM3W/rr+9crY6HxEgcwCBeuD+yQFCyPsH/pePy+bj3YiCzLaNTDgDumuRlidb7o2BmpCUV2M4EAJmrqFtmHzaXAxtfAOAqRrNVRgJ+mcOFryt4dQuIR8o/ZaEoB1rWNkBtuxEvL1bUnQAAAAASUVORK5CYII=) ![Right Arrow](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAcAAAAMCAYAAACulacQAAAACXBIWXMAAAsTAAALEwEAmpwYAAAAAXNSR0IArs4c6QAAAARnQU1BAACxjwv8YQUAAADQSURBVHgBdVC5DcJAENw53pAS6AA6wAlPCAGCDLsSoAJEBXwJEDk0JrA7wCW4BMeH5GXP2MggscHenEYzNzew5rt2PVULrdNt6DoJlUY1GEsCrWp1BNZ41/oiAV7LGQPo1hrYlEmYNRLrlNVDYIuJ9/eL7WRKs7yzE4OUJTABwR7M9puPspj+9NiD4tDglGml6M8YolJchrNTh8CewCaJyr8u1plt9tc8ECTQLQ+EN4FAYJuIXf9iTwq3qimBhWDm6KnZKb9bzUpgRFrz4be+FwjJTXtIGD7JAAAAAElFTkSuQmCC) See More See Less ## Choosing Investments for Your 401(k) Your personal timeline matters and may be one of the key factors to consider when choosing how to invest your money. “The longer you have until retirement, the more aggressive you can be,” Dever says. “If your plan offers target date funds or allocation funds, these are great ‘set it and forget it’ options.” But if you are getting closer to retirement age, your financial advisor may offer different advice. Most 401(k) plans offer a mix of options that range from conservative bond funds to aggressive stock funds. The right choice depends on your financial goals, risk tolerance and time left until retirement. The typical employer-sponsored plan provides a selection of [mutual funds](https://www.forbes.com/advisor/investing/best-mutual-funds/), index funds and exchange-traded funds for you to choose from. You might choose to stick with the default option—typically a target-date fund with a mix of stocks and bonds—or, if your plan allows, be pickier about where you invest your money. You have full control over how much of your 401(k) balance to invest in different funds. You could opt to invest 70% of your balance in a target-date fund, 20% in a bond index fund and 10% in an equity index fund, for example. ## How Do You Start a 401(k)? The easiest way to start a 401(k) is to go through your employer and enroll in their sponsored plan. If your company doesn’t offer 401(k) plans or you’re self-employed, you can set up your own plan through an online broker. Once you sign up, all you need to do is: 1. Set your contribution rate 2. Choose your contribution type, like a Roth or traditional 401(k) 3. Select the type of investments you’d like to make (many plans have a default option, while others give you more control over where your money goes) Those who are self-employed may have additional steps, like getting an employer identification number from the IRS and choosing the online brokerage you’d like to invest with. ## How To Withdraw Funds From a 401(k) When you reach retirement age of 59 ½, you can take as much money out of your retirement plan as you want. That said, be prepared to pay income taxes on that amount unless you have qualified withdrawals from Roth 401(k) accounts because you’ve already footed the tax bill on those. Traditional 401(k) plans are taxed as ordinary income when you make a qualified withdrawal. Once you reach the age of 73, you must take out a required minimum amount of money (RMDs) from your retirement account each year. If you withdraw money from your 401(k) too early, you might have to pay a penalty on top of tax on the distribution. ### How Do 401(k) RMDs Work? RMDs are the minimum amount you are required to take out of your retirement accounts each year. RMDs kick in when you turn 73, and apply to any traditional IRA, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA and retirement accounts that are not Roth IRAs (unless the account owner is deceased, then there are [specified RMD rules](https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs) for that). You can take out more than your required RMD, but not less, and all withdrawals will be taxed at your income level unless the funds were previously taxed, as with Roth accounts. If you fail to take out your RMDs, you might be subject to an excise tax of 25%. The amount you owe changes each year and is based on the amount of money in your accounts and your life expectancy factors. ### How To Avoid 401(k) Early Withdrawal Penalties The pros and cons of early withdrawal are often underestimated. Withdrawing funds from the 401(k) plan before age 59½ typically triggers both an income tax event and a [10% early withdrawal penalty](https://www.forbes.com/advisor/retirement/401k-early-withdrawal/). Related link: [401(k) early withdrawal calculator](https://www.forbes.com/advisor/retirement/401k-early-distribution-calculator/) If you need to withdraw from your retirement accounts before you turn 59 ½, there are some qualified ways to do so without paying the penalty. But it depends on the type of retirement plan. In some cases, you can take out money penalty-free to pay for: - Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income - Qualified distributions to military reservists called up for active duty - Total and permanent disability - Birth or adoption expenses, with distributions up to \$5,000 per child - Up to \$22,000 for those who sustain economic loss during a federally declared disaster ### 401(k) Loans You can borrow money from your 401(k) account and repay it like any other loan. But if you don’t repay the loan, then you’ll have to pay the early withdrawal penalties (if you’re under 59 ½), and the loan balance will be a taxable distribution. ## What Happens to Your 401(k) When You Change Jobs? When you change jobs, your 401(k) can easily follow, or not. If you have enough money vested in your account, you can roll your plan into a new one, keep your old one or cash it out. ### Leave Your 401(k) with Your Former Employer With this option, your funds will still grow tax deferred, and you can manage your investments, but you can’t contribute any new money to the account. ### Move Your 401(k) to Your New Employer’s Plan It’s hard to manage more than one retirement plan. Rolling your account over to your new employer’s retirement plan might be a good option. This transaction can be as easy as your previous retirement plan sponsor, mailing a check to the new one. ### Roll Your 401(k) Balance Into IRA If you want a more varied choice in investments, you can open your own IRA and roll your retirement funds into it. This option allows you to continue contributing earned income into your account and still take advantage of the tax benefits. Explore the Best 401(k) Plans [Learn More](https://www.forbes.com/advisor/retirement/best-401k-plans/%20) ## Frequently Asked Questions (FAQs) ### What is the difference between a Traditional 401(k) and a Roth 401(k)? In a traditional 401(k), income taxes on contributions and earnings are deferred. With a Roth 401(k), you pay taxes before your contribution goes in and are withdrawn tax-free once you hit retirement. ### What is the smartest way to withdraw from a 401(k)? It depends on your financial situation. If you need to withdraw before age 59 ½, borrowing money with a 401(k) loan will avoid the 10% tax penalty. Otherwise, it’s best to leave your 401(k) untouched until you reach retirement age, according to financial experts. ### At what age is a 401(k) withdrawal tax-free? Traditional 401(k) withdrawals are never tax-free. It’s only qualified withdrawals from a Roth 401(k) that are tax-free after age 59½. * Was this article helpful? 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Basics - [What Is A Roth 401(k)](https://www.forbes.com/advisor/retirement/what-is-roth-401k/ "What Is A Roth 401(k)") - [What Is An Annuity](https://www.forbes.com/advisor/retirement/what-is-an-annuity/ "What Is An Annuity") Guides - [How To Save For Retirement](https://www.forbes.com/advisor/retirement/how-to-save-for-retirement/ "How To Save For Retirement ") - [401(k) Early Withdrawal](https://www.forbes.com/advisor/retirement/401k-early-withdrawal/ "401(k) Early Withdrawal") - [How To Roll Over Your 401(k) To An IRA](https://www.forbes.com/advisor/retirement/401k-to-ira-rollover/ "How To Roll Over Your 401(k) To An IRA") Recommended Reading - [Traditional IRA Calculator](https://www.forbes.com/advisor/retirement/traditional-ira-calculator/ "Traditional IRA Calculator") - [Roth IRA Calculator](https://www.forbes.com/advisor/retirement/roth-ira-calculator/ "Roth IRA Calculator") - [Financial Advisors: How To Choose](https://www.forbes.com/advisor/investing/how-to-choose-a-financial-advisor/ "Financial Advisors: How To Choose") ### Next Up In Retirement - [7 Best 401(k) Plans](https://www.forbes.com/advisor/retirement/best-401k-plans/ "7 Best 401(k) Plans") - [Individual Retirement Accounts (IRAs)](https://www.forbes.com/advisor/retirement/ira-individual-retirement-account/ "Individual Retirement Accounts (IRAs)") - [What Is A Roth 401(k)](https://www.forbes.com/advisor/retirement/what-is-roth-401k/ "What Is A Roth 401(k)") #### More from ![forbes-advisor](https://www.forbes.com/advisor/wp-content/themes/fadv/assets/img/forbes-updated-logo.svg) [![Best Roth IRA Accounts Of 2026](https://www.forbes.com/advisor/wp-content/uploads/2022/01/best-roth-ira-accounts-568x322.jpg) Best Roth IRA Accounts Of 2026 ![Farran Powell](https://www.forbes.com/advisor/wp-content/uploads/2022/04/Farran-Powell_headshot.jpeg) By Farran Powell](https://www.forbes.com/advisor/retirement/best-roth-ira/ "Best Roth IRA Accounts Of 2026") [![Best Annuity Companies Of 2026](https://www.forbes.com/advisor/wp-content/uploads/2023/05/Best_annuity-568x322.jpg) Best Annuity Companies Of 2026 ![Maisha Shahid](https://www.forbes.com/advisor/wp-content/uploads/2024/11/maisha-headshot-Maisha-Shahid-e1730783915307.jpg) By Maisha Shahid](https://www.forbes.com/advisor/retirement/best-annuity-companies/ "Best Annuity Companies Of 2026") [![Augusta Precious Metals Review](https://www.forbes.com/advisor/wp-content/themes/fadv/assets/img/dummy-ra-image.png) Augusta Precious Metals Review ![Farran Powell](https://www.forbes.com/advisor/wp-content/uploads/2022/04/Farran-Powell_headshot.jpeg) By Farran Powell](https://www.forbes.com/advisor/retirement/augusta-precious-metals-review/ "Augusta Precious Metals Review") [![Best Fidelity Mutual Funds For 2026](https://www.forbes.com/advisor/wp-content/uploads/2022/06/fidelity_logo-568x322.jpeg) Best Fidelity Mutual Funds For 2026 ![Alora Bopray](https://www.forbes.com/advisor/wp-content/uploads/2025/07/Alora.png) By Alora Bopray](https://www.forbes.com/advisor/retirement/best-fidelity-mutual-funds/ "Best Fidelity Mutual Funds For 2026") [![9 Best Retirement Income Funds](https://www.forbes.com/advisor/wp-content/uploads/2022/01/best-retirement-income-funds-568x322.jpg) 9 Best Retirement Income Funds ![Alora Bopray](https://www.forbes.com/advisor/wp-content/uploads/2025/07/Alora.png) By Alora Bopray](https://www.forbes.com/advisor/retirement/best-retirement-income-funds/ "9 Best Retirement Income Funds") [![Best Vanguard Mutual Funds](https://www.forbes.com/advisor/wp-content/uploads/2022/05/best_vanguard_mutual_funds.jpeg-568x322.jpg) Best Vanguard Mutual Funds ![Farran Powell](https://www.forbes.com/advisor/wp-content/uploads/2022/04/Farran-Powell_headshot.jpeg) By Farran Powell](https://www.forbes.com/advisor/retirement/best-vanguard-mutual-funds/ "Best Vanguard Mutual Funds") [![Alora Bopray](https://thumbor.forbes.com/thumbor/fit-in/x/https://www.forbes.com/advisor/wp-content/uploads/2025/07/Alora-88x88.png)](https://www.forbes.com/advisor/author/alora-bopray/ "Alora Bopray") [Alora Bopray](https://www.forbes.com/advisor/author/alora-bopray/) Staff Writer © 2026 Forbes Media LLC. 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Readable Markdown	As an employer-sponsored retirement savings plan, the 401(k) is commonly offered as part of a job benefits package. With this retirement account, you choose to put aside a percentage of each paycheck and watch as your money grows tax deferred. A 401(k) is a voluntary—often employer-sponsored—retirement savings plan that lets you contribute a portion of your paycheck before or after it’s taxed. When you sign up for your employer’s 401(k) plan, you agree to have a percentage of each paycheck directly deposited into your 401(k) account. Your employer may also deposit money into your account by matching some or all of your contributions. The money is then invested into mutual funds, [exchange-traded funds](https://www.forbes.com/advisor/investing/best-etfs/) (ETFs), target-date funds, index funds, [money market funds](https://www.forbes.com/advisor/investing/the-best-money-market-mutual-funds/) and individual stocks, to name a few investment examples. Unless you meet certain criteria, a 401(k) remains untouched until you reach the retirement age of 59½. Related: [Best 401(k) Plans](https://www.forbes.com/advisor/retirement/best-401k-plans/) ### What Is a Traditional 401(k)? A traditional 401(k) is not taxed when it goes into the account, but taxed at a normal income rate when distributed during retirement. With this type of retirement account, contributions are taken out of your paycheck before income taxes are calculated, meaning contributions help lower your taxable income. ### What Is a Roth 401(k)? With a [Roth 401(k)](https://www.forbes.com/advisor/retirement/what-is-roth-401k/), contributions are made after you pay income taxes. There’s no upfront tax break. You don’t pay taxes on the money you take out of your account after retirement. ## Pros and Cons of a 401(k) A 401(k) comes with several advantages that make it one of the most powerful ways to save for retirement. As Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, says, “The biggest advantage of a 401(k) is forced savings discipline for an investor—you’re saving money for retirement before any money hits your checking account.” This automatic saving, combined with the tax benefits of pretax contributions, means your money grows more efficiently than it would in a taxable account. In addition, many employers offer a matching contribution, which Yoshida calls “essentially free money,” making participation a “no-brainer” if it’s available. Pros of a 401(k): - Pretax contributions reduce taxable income - Employer match - Higher contribution limits compared to IRAs - Regimented way to save for retirement - Tax-deferred growth for more efficient compounding - Options for loans and hardship withdrawals - Dollar-cost averaging through payroll deductions But 401(k)s also come with drawbacks worth considering. “Cons of a 401(k) include limited investment choices, vesting rules and possible fees,” says Bethany Dever, vice president and relationship manager at Rockland Trust, a commercial bank headquartered in Massachusetts. When compared to alternative savings options, 401(k)s have a limited investment menu. You can still choose your investments, but it all depends on the options your company has chosen. Cons of a 401(k): - Limited investment options compared to [individual retirement accounts](https://www.forbes.com/advisor/retirement/best-ira-accounts/) (IRAs) or [brokerage accounts](https://www.forbes.com/advisor/investing/best-online-brokers/) - Possible high administrative or fund fees - Penalties for early withdrawals (before age 59 ½, in most cases) - Vesting schedules that delay ownership of employer contributions - Less flexibility than other investment accounts ## 401(k) Contributions You have full control over how much of your income you contribute to your 401(k) account each year, if you stay within the IRS limits. When you start a new job, you elect to save a percentage of your annual salary. You can adjust the amount you contribute up or down as often as the rules of the plan allow. Unlike health insurance, where you enroll once per year, you can halt your contributions at any time. Depending on your employer’s plan, you may be automatically enrolled in a 401(k) plan unless you choose to opt out of the plan. For others, you may need to actively choose to enroll in a plan or opt out. ## Annual 401(k) Contribution Limits There is an annual limit to how much you can contribute to your 401(k) accounts. In 2026, the 401(k)contribution limit for those under 50 is \$24,500, up from \$23,500 in 2025. If you are age 50 or older, you are eligible for additional catch-up contributions of \$8,000. There is an [additional 401(k) catch-up](https://www.forbes.com/advisor/retirement/401k-catch-up-contributions/) amount for employees ages 60, 61, 62 or 63. If your plan allows, you can contribute up to \$11,250. ### 401(k) Contribution Limits 2025 \| Type of Contribution \| 2024 Limit \| 2025 Limit \| 2026 Limit \| \|---\|---\|---\|---\| \| Maximum Employee Contribution \| \$23,000 \| \$23,500 \| \$24,500 \| \| Catch-Up Contributions for those 50 or Older \| \$7,500 \| \$7,500 \| \$8,000 \| \| Catch-Up Contributions (in place of \$7,500) for those 60-63 \| n/a \| \$11,250 \| \$11,250 \| ## What Is a 401(k) Matching Contribution? As part of a benefits package, some employers will match a certain percentage of pay, should you decide to put money aside into your employer-sponsored 401(k). According to Vanguard’s [2025 industry report](https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2025/has/2025_How_America_Saves.pdf), the average employer match is 4.6% of annual pay. But some employers will match up to 6%. Other companies follow a formula that matches \$0.50 for every dollar an employee contributes up to a certain percentage of their salary. When starting a new job, ask whether your employer provides matching 401(k) contributions, and how much you need to contribute to maximize the match. Pro Tip You should set your contribution level to obtain the full match; otherwise, you’re missing out on free money. ## How Do Employer 401(k) Matching Contributions Work? Employer matching contributions are typically straightforward, except when vesting comes into play (more on that below). If your salary is \$60,000 and your employer offers a dollar-for-dollar match up to 5% of your annual pay, you could contribute \$3,000. For that contribution, your employer would also contribute \$3,000. That’s \$6,000 going into your 401(k) each year—double the amount you put in. If instead your employer uses a \$0.50-on-the-dollar match up to 6%, and you contribute \$3,600, the company would add \$1,800. Together, that’s \$5,400 invested toward your retirement. If you plan to stay with your company long-term, you can [easily calculate your 401(k) savings](https://www.forbes.com/advisor/retirement/401k-calculator/). ### Annual Limits for an Employer’s 401(k) Match Similar to how you are limited in how much money you can contribute to your 401(k), employers are also limited. In 2025, the combined employer and employee contributions are \$70,000 for those under 50. If you are 50 or older, catch-up contributions increase your combined limit to \$77,500 or \$81,250 if you are between the ages of 60 and 63. \| Contribution Type \| 2024 Limit \| 2025 Limit \| \|---\|---\|---\| \| 401(k) Employee & Employer Contributions \| \$69,000 \| \$70,000 \| \| Total with Catch-Up Contributions for those 50 or Older \| \$76,500 \| \$77,500 \| \| Catch-Up Contributions (in place of \$7,500) for those 60-63 \| n/a \| \$81,250 \| ### 401(k) Matching Contributions and Vesting Some employers grant 401(k) matching contributions that “vest” over time. That means the money your employer matches doesn’t become fully yours until you meet certain criteria. This vesting schedule is typically put in place to encourage employees to remain with the company long term. Under a vesting schedule, you gradually take ownership of your employer’s matching contributions over several years. If you remain with the company for their set vesting period, you are said to be “fully vested” in your 401(k) and have ownership over all contributions made to your retirement account. Example: Let’s say your employer’s contributions become 50% vested after you’ve worked for the company for two years, but you become fully vested after five years. If you were to leave the company and take a new job after only three years, you would only get half of the contributions your employer pledged to your account. Pro Tip Your contributions are always 100% yours; vesting only applies to employer matching contributions. ## IRA vs. 401(k) The main difference between an IRA and a 401(k) is that an IRA is a personal retirement account, and a traditional 401(k) is an employer-sponsored 401(k) with much higher annual contribution limits than IRAs, which is ideal for anyone in a high tax bracket who wants to lower their taxable income. For instance, for the 2026 tax year, the annual 401(k) contribution limit for those under age 50 is \$24,500, but only \$7,500 for an IRA. IRAs are much more flexible than a 401(k). You get to choose which online brokerage to use for your IRA, which can give you access to benefits like robo-advisors, personalized customer service and others. With a 401(k), employers often pick and choose which types of investments you can make. IRAs, on the other hand, have many options for you to choose from. ### Comparing a Traditional 401(k) vs. Traditional IRA \| Characteristic \| Traditional 401(k) \| Traditional IRA \| \|---\|---\|---\| \| Managed by \| Employer/plan administrator \| You \| \| Contribution limits \| Higher than IRAs \| Lower \| \| Investment options \| Selection chosen by employer \| Wide range of options \| \| Employer contributions \| Matches depend on employer, but may be up to 6% of your income \| Not applicable \| \| Flexibility \| Tied to the employer \| Not tied to an employer \| ## Choosing Investments for Your 401(k) Your personal timeline matters and may be one of the key factors to consider when choosing how to invest your money. “The longer you have until retirement, the more aggressive you can be,” Dever says. “If your plan offers target date funds or allocation funds, these are great ‘set it and forget it’ options.” But if you are getting closer to retirement age, your financial advisor may offer different advice. Most 401(k) plans offer a mix of options that range from conservative bond funds to aggressive stock funds. The right choice depends on your financial goals, risk tolerance and time left until retirement. The typical employer-sponsored plan provides a selection of [mutual funds](https://www.forbes.com/advisor/investing/best-mutual-funds/), index funds and exchange-traded funds for you to choose from. You might choose to stick with the default option—typically a target-date fund with a mix of stocks and bonds—or, if your plan allows, be pickier about where you invest your money. You have full control over how much of your 401(k) balance to invest in different funds. You could opt to invest 70% of your balance in a target-date fund, 20% in a bond index fund and 10% in an equity index fund, for example. ## How Do You Start a 401(k)? The easiest way to start a 401(k) is to go through your employer and enroll in their sponsored plan. If your company doesn’t offer 401(k) plans or you’re self-employed, you can set up your own plan through an online broker. Once you sign up, all you need to do is: 1. Set your contribution rate 2. Choose your contribution type, like a Roth or traditional 401(k) 3. Select the type of investments you’d like to make (many plans have a default option, while others give you more control over where your money goes) Those who are self-employed may have additional steps, like getting an employer identification number from the IRS and choosing the online brokerage you’d like to invest with. ## How To Withdraw Funds From a 401(k) When you reach retirement age of 59 ½, you can take as much money out of your retirement plan as you want. That said, be prepared to pay income taxes on that amount unless you have qualified withdrawals from Roth 401(k) accounts because you’ve already footed the tax bill on those. Traditional 401(k) plans are taxed as ordinary income when you make a qualified withdrawal. Once you reach the age of 73, you must take out a required minimum amount of money (RMDs) from your retirement account each year. If you withdraw money from your 401(k) too early, you might have to pay a penalty on top of tax on the distribution. ### How Do 401(k) RMDs Work? RMDs are the minimum amount you are required to take out of your retirement accounts each year. RMDs kick in when you turn 73, and apply to any traditional IRA, Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA and retirement accounts that are not Roth IRAs (unless the account owner is deceased, then there are [specified RMD rules](https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs) for that). You can take out more than your required RMD, but not less, and all withdrawals will be taxed at your income level unless the funds were previously taxed, as with Roth accounts. If you fail to take out your RMDs, you might be subject to an excise tax of 25%. The amount you owe changes each year and is based on the amount of money in your accounts and your life expectancy factors. ### How To Avoid 401(k) Early Withdrawal Penalties The pros and cons of early withdrawal are often underestimated. Withdrawing funds from the 401(k) plan before age 59½ typically triggers both an income tax event and a [10% early withdrawal penalty](https://www.forbes.com/advisor/retirement/401k-early-withdrawal/). Related link: [401(k) early withdrawal calculator](https://www.forbes.com/advisor/retirement/401k-early-distribution-calculator/) If you need to withdraw from your retirement accounts before you turn 59 ½, there are some qualified ways to do so without paying the penalty. But it depends on the type of retirement plan. In some cases, you can take out money penalty-free to pay for: - Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income - Qualified distributions to military reservists called up for active duty - Total and permanent disability - Birth or adoption expenses, with distributions up to \$5,000 per child - Up to \$22,000 for those who sustain economic loss during a federally declared disaster ### 401(k) Loans You can borrow money from your 401(k) account and repay it like any other loan. But if you don’t repay the loan, then you’ll have to pay the early withdrawal penalties (if you’re under 59 ½), and the loan balance will be a taxable distribution. ## What Happens to Your 401(k) When You Change Jobs? When you change jobs, your 401(k) can easily follow, or not. If you have enough money vested in your account, you can roll your plan into a new one, keep your old one or cash it out. ### Leave Your 401(k) with Your Former Employer With this option, your funds will still grow tax deferred, and you can manage your investments, but you can’t contribute any new money to the account. ### Move Your 401(k) to Your New Employer’s Plan It’s hard to manage more than one retirement plan. Rolling your account over to your new employer’s retirement plan might be a good option. This transaction can be as easy as your previous retirement plan sponsor, mailing a check to the new one. ### Roll Your 401(k) Balance Into IRA If you want a more varied choice in investments, you can open your own IRA and roll your retirement funds into it. This option allows you to continue contributing earned income into your account and still take advantage of the tax benefits. Explore the Best 401(k) Plans ## Frequently Asked Questions (FAQs) In a traditional 401(k), income taxes on contributions and earnings are deferred. With a Roth 401(k), you pay taxes before your contribution goes in and are withdrawn tax-free once you hit retirement. It depends on your financial situation. If you need to withdraw before age 59 ½, borrowing money with a 401(k) loan will avoid the 10% tax penalty. Otherwise, it’s best to leave your 401(k) untouched until you reach retirement age, according to financial experts. Traditional 401(k) withdrawals are never tax-free. It’s only qualified withdrawals from a Roth 401(k) that are tax-free after age 59½. ***
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