401(k)
An employer-sponsored defined contribution retirement plan governed by Internal Revenue Code Section 401(k), allowing employees to defer pre-tax compensation (Traditional 401(k)) or post-tax compensation (Roth 401(k)) into investment options selected by the plan. The largest US retirement savings vehicle by assets.
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The 401(k) is the dominant US employer-sponsored retirement plan by both participants and assets. Employees elect a contribution percentage from each paycheck, the employer deducts the contribution before payroll taxes (Traditional) or after payroll taxes (Roth) depending on the election, and the contributions flow into a plan-administered investment menu — typically target-date funds, broad-market index funds, and the employer's own stock if publicly traded. The employer may match contributions on a stated formula (commonly 50% match on the first 6% of salary deferred, or 100% match on the first 3% with a partial match on the next 2%); the employer match is the single highest-ROI dollar in most US households' financial lives.
Annual employee contribution limits in 2026 are $24,500 for those under 50 and $32,500 for those 50 and over (including an $8,000 catch-up; a higher $11,250 catch-up applies at ages 60–63 under SECURE 2.0). These limits apply to combined Traditional and Roth 401(k) contributions in a year — splitting between the two does not increase the total. The Internal Revenue Code also caps total contributions (employee plus employer plus after-tax) at $72,000 in 2026 ($80,000 for those 50 and over), and this larger cap is the basis for the mega backdoor Roth strategy at plans that allow after-tax contributions and in-service conversions.
Investment options in a 401(k) are limited to whatever the plan sponsor (the employer) makes available, which varies enormously by employer. A well-designed plan offers low-cost broad-market index funds (Vanguard Institutional Index, Fidelity 500 Index, etc.) and target-date funds with reasonable glide paths at expense ratios under 0.20%. A poorly designed plan offers only high-fee actively managed funds with expense ratios above 1.00%, eroding decades of compound returns. Employees stuck in poorly designed plans face a real tension: the employer match makes the plan worth funding to the match, but expense-ratio drag may make funding beyond the match worse than alternatives.
The mechanics of accessing 401(k) funds are constrained. While employed, withdrawals are generally limited to hardship distributions, loans (which must be repaid with interest), and after-tax distributions if the plan allows. After separation from the employer, the participant can leave the balance in the old plan, roll it over to an IRA at any brokerage, or transfer it to the new employer's plan if accepted. The rollover to an IRA option is the most flexible and typically the right answer for most departing employees, since it opens up the full investment universe rather than the plan's curated menu. The investing hub's tax-advantaged hierarchy pillar walks through the funding order and the rollover decisions.
- 401(k) match math: the highest-ROI dollar in personal finance The 401(k) employer match captures a 50–100% return before any market return. Match formulas, vesting schedules, true ROI, and the math.
- The US tax-advantaged account hierarchy HSA, 401(k) match, Roth IRA, max 401(k), mega backdoor Roth, taxable — the order to fund US retirement accounts, with bracket-aware math.
- The mega backdoor Roth — how to put $47K into a Roth in one year The 401(k) after-tax contribution plus in-plan Roth conversion that lets high earners route up to $47,500 into Roth accounts each year.
- The HSA is a retirement account in disguise — triple-tax math The HSA triple-tax-advantaged structure makes it the most efficient US retirement vehicle when used right — contributions, investments, receipts strategy.
- The backdoor Roth IRA — Roth contribution above the income limit How to contribute to a Roth IRA above the income limit: the two-step conversion, the pro-rata rule, Form 8606, and when the strategy works.
- Roth IRA An Individual Retirement Account funded with post-tax dollars where contributions are not tax-deductible, growth is tax-free, and qualified withdrawals after age 59½ are tax-free. Subject to annual contribution limits and income-based phase-outs.
- Traditional IRA An Individual Retirement Account funded with pre-tax dollars (deductible up to income limits if a workplace retirement plan is available) where growth is tax-deferred and withdrawals in retirement are taxed as ordinary income. Required Minimum Distributions begin at age 73.
- Mega backdoor Roth A 401(k) strategy where an employee contributes after-tax dollars beyond the standard employee deferral limit and converts them to Roth, either inside the plan or via in-service withdrawal to a Roth IRA. Can add up to approximately $47,500 of additional Roth contributions per year for employees of plans that permit it.
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