401(k)

retirement

Also known as: 401(k), 401k, employer-sponsored retirement plan

Updated May 11, 2026 · Written and reviewed by Konstantin Iakovlev

Detailed explanation

Traditional 401(k) contributions are made pre-tax (reducing current taxable income); withdrawals in retirement are taxed as ordinary income. Roth 401(k) contributions are after-tax; qualified withdrawals are 100% tax-free. Most plans match employee contributions (typically 50% match on first 6%, totaling 3% of salary as "free money"). 401(k) contributions reduce AGI (traditional only). Required Minimum Distributions (RMDs) start at age 73 (75 starting 2033 under SECURE 2.0). Early withdrawals before 59½ trigger 10% penalty + ordinary income tax (with exceptions for hardship, first-home, education).

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