Last updated: January 19, 2026
A 401(k) is an employer-sponsored retirement plan allowing pre-tax contributions, reducing current taxable income.
Many employers match contributions (free money!). Contribution limits are higher than IRAs ($23,000 in 2024).
Withdrawals are taxed as ordinary income. Early withdrawals face penalties.
Understanding 401(k) helps you make better investment decisions and plan for taxes. Explore related concepts below to deepen your knowledge.
A 401(k) is a retirement savings plan offered by employers that has tax advantages for the saver. You can choose to have a portion of your paycheck paid directly into the plan.
Almost always, yes—especially if your employer offers a match. An employer match is essentially a 100% return on your investment ('free money').
The individual contribution limit for 401(k) plans in 2024 is $23,000. If you are age 50 or older, you can make an additional catch-up contribution of $7,500.
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