A 401(k) plan is an investment account offered by your employer that allows you to save for retirement. If your company offers a 401(k) plan, it may have certain eligibility requirements. While these requirements vary by company, some employees may be excluded from participating if they are not at least 21 years of age or have not completed a year of service with the company.
If you’re considering a job offer, be sure to ask about the company’s retirement plan, including any waiting period.
How much can I contribute to a 401(k) plan?
401(k) plan accounts have higher contribution limits than individual retirement accounts (IRAs). For 2026, you can contribute up to $24,500 of your salary to a 401(k). This limit applies to your combined contributions across all 401(k), 403(b) and SIMPLE plans in which you participate, not to each account separately. Employer contributions don't count toward this limit.
To boost your contributions even further, you might consider catch-up contributions, if your plan offers them. If you are 50 or older, you can contribute an extra $8,000 (up to $32,500 total in 2026). Participants who turn 60 through 63 during 2026 have a higher $11,250 catch-up limit (up to $35,750 total). Beginning in 2026, if your prior-year wages from your employer exceeded $150,000, catch-up contributions must be made on a Roth (after-tax) basis. These increased limits can help boost your savings as you near the retirement finish line. But you don't actually have to be "behind" in your savings to take advantage of catch-up contributions.
What is the difference between a traditional and Roth 401(k) plan?
Many 401(k) plans let you make traditional contributions, Roth contributions, or both. These plans have some similarities: They are subject to the same annual contribution limit and may offer the same investment options. However, traditional and Roth 401(k) plans differ in terms of the tax benefits they offer.
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Traditional
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Roth
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Contributions
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Made on a pre-tax basis
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Made on an after-tax basis
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Withdrawals
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Subject to income tax
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Tax-free after age 59 ½*
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A traditional 401(k) plan is sometimes referred to as a pre-tax 401(k) plan. You contribute to the plan with before-tax dollars. Because you don’t pay taxes on the money you put into the plan, you must pay taxes (both federal and most state income taxes) when you withdraw it. This structure could be an advantage if you’re in a high tax bracket today but expect to be in a lower one when retired.
With a Roth 401(k) plan, the opposite is true. You save after-tax dollars in the account. Because you’ve already paid taxes on what you’re saving, your withdrawals are considered “qualified” distributions and won’t be taxed as long as both of the following criteria are met:
- It has been at least five years since your initial Roth contribution to the plan.
- Distributions are made after age 59½, because of disability or to a beneficiary after your death.
How does 401(k) plan matching work?
One major benefit of 401(k) plans is that employers often contribute to your account and “match” what you save. Each employer has its own methods and rules for how it makes matching 401(k) plan contributions. Importantly, a match does not necessarily mean that an employer matches your contributions dollar for dollar. Instead, employers typically match up to a certain percentage of your salary or your contribution.
If your company offers a match, be sure to consider taking advantage of this benefit. It could be a simple and effective way to boost your retirement savings.
One important note: Employers often require you to wait for a certain amount of time before their contributions to your account “vest,” meaning they become yours to keep. Consider this provision before changing jobs so that you don’t inadvertently miss out on extra savings for your retirement.
When can I withdraw from my 401(k) plan?
59½, although your plan's rules determine when withdrawals are available, particularly while you're still working for the employer. Taking out your savings before that age could cost you an extra 10% federal tax on top of the regular federal and state income taxes you'd normally pay, unless an exception applies (for example, if you leave your job in or after the year you turn 55).
When it's time to start using your savings, be sure to consider the tax implications. In addition, you generally must begin taking required minimum distributions (RMDs) from pre-tax 401(k) savings at age 73 (age 75 if you were born in 1960 or later). If you're still working for the employer that sponsors the plan, you may be able to delay RMDs until you retire. Roth 401(k) accounts are not subject to RMDs during your lifetime.
401(k) plans can be very useful tools in saving for retirement, particularly if you take advantage of features that your plan may offer to help maximize your savings. And the sooner you start saving in your 401(k) plan, the longer any investment earnings have to produce earnings of their own.
