Retirement and Social Security
Definition
A workplace retirement savings plan that lets employees save part of each paycheck, often with an employer match; the 2026 limit is $24,500.
What it means
A 401(k) is an employer-sponsored retirement plan. You choose a percentage of pay to contribute, either pre-tax (traditional), which lowers taxable income now and is taxed when withdrawn, or Roth, which is taxed now and can be withdrawn tax-free in retirement if rules are met. For 2026, the IRS limit on employee contributions is $24,500, with catch-up contributions for people 50 and older. Many employers add matching contributions, which may vest over several years. Money is invested in options the plan offers, such as target-date or index funds, and can gain or lose value. Withdrawals before age 59 1/2 are generally taxed and may face a 10% additional tax unless an exception applies. Similar plans include the 403(b) for schools and nonprofits and the 457(b) for governments.
Example
An employee earning $70,000 who contributes 6% puts in $4,200 a year. With a match of 50% of contributions up to 6% of pay, the employer adds $2,100.
Illustrative numbers only. Your situation will differ.