401(k)

A 401(k) is a retirement savings account offered through an employer, named after a section of US tax law. You choose how much of each paycheck goes in, the money is deducted before it reaches you, and you invest it among the options the plan offers. Some employers add a match, contributing when you do, up to a limit the plan sets.

Contributions are traditional (no federal income tax now, tax at withdrawal); some plans also offer Roth contributions (taxed now, qualified withdrawals tax free). For 2026, the IRS limit is $24,500 of your own pay, plus a catch-up amount from age 50 that varies.

Not every employer offers one, and plans differ. The balance is invested, so it can lose value, and taxable withdrawals before age 59½ generally mean income tax plus a 10 percent penalty, with some exceptions.