Retirement
401(k)
An employer-sponsored retirement savings plan with tax advantages.
Definition
A 401(k) is a tax-advantaged retirement savings plan sponsored by an employer. Employees can contribute a portion of their pre-tax salary (traditional 401k) or after-tax salary (Roth 401k) to the plan. For 2025, the employee contribution limit is $23,500 ($31,000 if age 50+). Many employers offer matching contributions — typically 50-100% of employee contributions up to 3-6% of salary. Traditional 401k contributions reduce taxable income now but are taxed upon withdrawal in retirement. The plan offers a limited menu of investment options, typically mutual funds and target-date funds. Early withdrawals before age 59½ generally incur a 10% penalty plus income tax.