What Is a 401(k)?
A 401(k) is a workplace retirement plan you contribute to from your pay, often with money added by your employer. How it works, traditional versus Roth contributions, the yearly limit, and the employer match.
In one sentence
401(k). A workplace retirement plan offered by many private employers. You put part of your pay into an account, and your employer may add money too.
How it works
A 401(k) lets you put part of your pay into a retirement account, and your employer may add money too. In a traditional 401(k), the money goes in before federal income tax, so it isn't counted as taxable income that year. Many plans also let you make contributions as Roth contributions instead, which are taxed now and can come out tax-free later.1
For 2026, you can contribute up to $24,500 of your own pay.2
The employer match
Many employers match employee contributions up to a certain percentage of salary. Contribute at least that much and you get the full benefit; contribute less and you may be passing up money.3
| You contribute | Employer adds | Total going in each year |
|---|---|---|
| 1%: $600 | $600 | $1,200 |
| 3%: $1,800 | $1,800 | $3,600 |
| 6%: $3,600 | $1,800 | $5,400 |
Up to the match limit, every dollar you put in is doubled before it's invested. Matching money may only become fully yours after a vesting period.
Learn it properly
- How Retirement Accounts WorkPart 6: Strategy, Behavior, Accounts, and Taxes · Free
Notes and sources
- Internal Revenue Service. 401(k) Resource Guide: Plan Participants, 401(k) Plan Overview. Checked 2026-10-05. Back to text
- Internal Revenue Service. 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 (IR-2025-111, November 13, 2025). Checked 2026-10-06. Back to text
- FINRA. The Beginner's Guide to 401(k)s. Checked 2026-09-26. Back to text