1. What Is a 401(k)?
A 401(k) is a retirement savings plan that U.S. employers may offer. Employees can contribute part of their pay on a Traditional or Roth basis, within the limits allowed by the plan, and employers may provide matching contributions. Your company’s plan documents determine whether matching is available, along with the investment choices and withdrawal rules.
2026 Basic Limits and Catch-Up Contributions
The employee salary deferral limit is $24,500. If the plan allows it, people aged 50 and older can generally contribute an additional $8,000, while those who turn 60 to 63 in 2026 may be eligible for a higher $11,250 limit. The general total limit, including employer contributions, is $72,000, but it may be lower depending on compensation and plan rules.
3. Traditional vs. Roth 401(k)
Traditional 401(k) contributions generally reduce taxable income when made and may be taxed when withdrawn. Roth 401(k) contributions are made after tax, and qualified withdrawals made after five tax years have passed from the first Roth contribution year and after age 59½, death, disability, or other applicable requirements are generally tax-free. Withdrawals that do not meet the requirements may incur taxes or additional penalties. Which option is more advantageous depends on your current and projected retirement income and tax rates, as well as your plan rules, so do not decide based solely on age or a single forecast.
Check Matching and Vesting
Matching contributions are available only when the company offers them, and both the formula and contribution timing can vary. Before setting your contribution rate, check the vesting schedule to see how much of the employer match you would keep if you left the company.
5. Choosing Investment Options
A 401(k) may offer mutual funds, index funds, target-date funds, and other options. You cannot determine the right allocation between stocks and bonds based on age alone. Consider the time until retirement, other assets, the losses you can afford, and your withdrawal plan together. Fees matter, but lower fees do not guarantee higher returns, so compare each option using the same criteria: investment objective, risk, performance benchmark, and total cost. Target-date funds may still retain a meaningful stock allocation and level of risk after the target date, so review the glide path.