A 401(k) is an employer-sponsored retirement account that allows workers to save and invest part of their paycheck for retirement, often with potential employer matching contributions.
A 401(k) is a retirement savings plan offered by many employers.
Employees can contribute part of their paycheck to the account, and the money can generally be invested in options such as mutual funds, target-date funds and other investments selected by the plan.
Depending on the plan, contributions may be made on a traditional pre-tax basis, a Roth after-tax basis or both.
Why Consider a 401(k)?
Tax Advantages
Traditional 401(k) contributions may reduce taxable income today, while Roth 401(k) contributions can provide tax-free qualified withdrawals later.
Employer Matching
Some employers contribute additional money when employees make their own 401(k) contributions.
Automatic Saving
Payroll deductions make it easier to contribute regularly toward long-term retirement goals.
Explore 401(k) Options
Traditional 401(k)
Contributions are generally made before taxes, with withdrawals taxed in retirement.
Disclaimer: IRS contribution limits and tax rules can change. Individual eligibility and plan rules vary, so current IRS guidance and plan documents should be reviewed.
What Can Affect Your 401(k) Growth?
Contributions
Saving more consistently can increase the amount available for retirement.
Employer Match
Employer contributions can significantly increase long-term account growth.
Investment Performance
Returns depend on the investments selected within the plan.
Fees
Administrative and investment expenses can reduce long-term returns.
Time Horizon
Starting earlier gives contributions more time to potentially compound.
Withdrawals
Loans and early withdrawals can reduce the amount available for retirement.
Who May Consider a 401(k)?
A 401(k) may be worth using if your employer offers one and you want to build retirement savings through regular payroll contributions.
Common Reasons
Saving for retirement
Receiving employer matching contributions
Reducing current taxable income
Building tax-deferred savings
Creating future Roth income
Automating retirement contributions
Consolidating old employer accounts
Benefits and Things to Consider
Benefits
Tax-advantaged retirement saving
Employer matching may be available
High annual contribution limits
Automatic payroll contributions
Wide range of investment options may be available
Things to Consider
Investment choices are limited by the plan
Fees vary between plans
Early withdrawals may trigger taxes and penalties
Required distribution rules may apply
Employer matching rules can include vesting requirements
401(k) vs. Other Retirement Accounts
401(k)
Employer-sponsored retirement savings with payroll contributions and potential employer matching.
