📅 2025-09-10
Learn everything about 401(k), America's premier retirement savings plan. Understand contribution limits, employer matching, tax benefits, and how to maximize your retirement savings.
A 401(k) is an employer-sponsored retirement savings plan. Employees contribute a portion of their salary pre-tax (Traditional 401k) or after-tax (Roth 401k), and employers often match a percentage of these contributions. Investment gains receive tax benefits until retirement.
For 2025, the 401(k) contribution limit is $23,000. If you're 50 or older, you can make an additional catch-up contribution of $7,500, totaling $30,500. The total limit including employer matching is $69,000.
Traditional 401(k): Pre-tax contributions reduce current taxable income, pay taxes on withdrawal. Roth 401(k): After-tax contributions, pay taxes now, tax-free withdrawals in retirement. Choose Roth if your current tax rate is low, Traditional if you expect lower rates in retirement.
Many employers match a portion of your 401(k) contributions. Example: contribute 6% of salary, employer matches 50% (adds 3%). This is an immediate 50% return on investment, so always contribute at least up to the match limit.
Within your 401(k), you can invest in mutual funds, index funds, target-date funds, etc. Generally, increase stock allocation when young, shift to bonds as retirement approaches. Low-fee index funds are advantageous long-term.
401(k) is the cornerstone of retirement preparation in the US. Maximize employer matching, save up to contribution limits, and choose appropriate investment options for a secure retirement.