A 401(k) is an employer-sponsored retirement savings plan that offers significant tax advantages. It is one of the most powerful tools for retirement saving.
How a 401(k) Works
You elect to have a portion of your pre-tax salary contributed to your 401(k) account. This reduces your taxable income for the year. The money grows tax-deferred until you withdraw it in retirement.
Employer Matching
Many employers offer matching contributions, such as matching 50% of your contributions up to 6% of your salary. This is essentially free money — always contribute enough to get the full match.
Contribution Limits
The IRS sets annual contribution limits. For 2026, employees can contribute up to $23,500 (plus $7,500 catch-up for ages 50+). Total contributions including employer match cannot exceed $70,000.
Maximize Your Match
If your employer offers a 401(k) match, contribute at least enough to receive the full match. It is an immediate 50-100% return on your money.
