401(k)

What Is a 401(k)?

A 401(k) is a retirement savings account offered by many employers. You contribute a portion of your salary before taxes are taken out, reducing your taxable income. The money grows tax‑deferred until you withdraw it in retirement.

The Employer Match – Free Money

Many companies offer a match (e.g., 50% of your contributions up to 6% of your salary). If you earn $60,000 and contribute 6% ($3,600), your employer adds another $1,800. That’s an instant 50% return, guaranteed.

Limits

• 2026 contribution limit: $23,500 (under age 50)
• Catch‑up contributions: an extra $7,500 if you’re 50+

Early Withdrawal Penalties

Taking money out before age 59½ usually triggers a 10% penalty plus ordinary income tax. However, loans and hardship withdrawals are sometimes allowed.

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Last verified: July 2026