Employer-sponsored retirement plan that lets you contribute pre-tax (Traditional) or post-tax (Roth) dollars, often with a company match.
A 401(k) is a defined-contribution retirement plan governed by IRS Section 401(k). Traditional contributions reduce current taxable income; Roth contributions are taxed now but grow tax-free. The 2025 employee limit is $23,500 ($31,000 with catch-up at age 50+).
The 401(k) employee elective-deferral limit is published annually by the IRS in a Cost-of-Living Adjustment notice (typically released in late October or early November for the following calendar year). For tax year 2025, IRS Notice 2024-80 set the limit at $23,500 for employees under age 50. Workers age 50 and older may make an additional "catch-up" contribution of $7,500, bringing their cap to $31,000. The SECURE 2.0 Act introduced an ENHANCED catch-up for workers age 60-63 starting in 2025, equal to the greater of $10,000 or 150% of the regular catch-up — effectively raising the cap to about $34,750 in that age band. Employer matching contributions are SEPARATE from the employee limit; the combined employee-plus-employer total cap (IRC Section 415(c)) is $70,000 for 2025 ($77,500 with age-50 catch-up). Traditional 401(k) contributions are deducted from pre-tax wages, reducing current-year W-2 taxable income; withdrawals in retirement are taxed as ordinary income. Roth 401(k) contributions are made with post-tax dollars but qualified withdrawals (after age 59½ and a 5-year holding period) are entirely tax-free, including investment growth. Common mistakes: (1) contributing less than the employer match — leaving free money on the table; the match is part of total compensation, (2) confusing the employee limit with the combined limit (the larger 415(c) figure does NOT mean you personally can contribute more than $23,500), (3) ignoring vesting schedules — employer match dollars may be forfeited if you leave before fully vested, (4) early withdrawals — withdrawals before age 59½ typically carry a 10% IRS penalty plus ordinary income tax (some exceptions apply), (5) leaving 401(k) money in a former employer's plan without checking fees — rolling over to an IRA or new 401(k) often gives access to lower-cost investment options. The plan administrator (typically a recordkeeper like Fidelity, Vanguard, Empower) handles contribution processing; the employer is the plan sponsor.
2025 employee elective-deferral limit announced at $23,500 (up from $23,000 in 2024) per IRS Notice 2024-80.
2025 catch-up contribution for workers age 50+ held flat at $7,500 (unchanged from 2024).
SECURE 2.0 enhanced catch-up takes effect for workers age 60-63: greater of $10,000 or 150% of the regular catch-up, capping at approximately $34,750 in that age band.
2025 combined employee + employer contribution limit (IRC §415(c)) raised to $70,000 from $69,000 in 2024.
Per IRS Notice 2024-80, the 2025 employee elective-deferral limit is $23,500 for workers under age 50. Workers age 50 and over can add a $7,500 catch-up contribution, for a total of $31,000. Under the SECURE 2.0 Act, workers age 60-63 in 2025 qualify for an enhanced catch-up of the greater of $10,000 or 150% of the regular catch-up — pushing their cap to approximately $34,750. The combined employee-plus-employer cap (IRC Section 415(c)) is $70,000 for 2025 ($77,500 with age-50 catch-up). These limits are adjusted annually by the IRS for inflation.
Traditional 401(k) contributions are deducted from your pay BEFORE taxes — reducing your current taxable income — and all withdrawals in retirement (contributions plus growth) are taxed as ordinary income. Roth 401(k) contributions are made with AFTER-tax dollars, so they don't reduce current taxes, but qualified withdrawals after age 59½ (and a 5-year holding period) are entirely TAX-FREE. The choice typically depends on whether you expect to be in a higher or lower tax bracket in retirement vs. now. The IRS Retirement Topics page documents both structures. Many plans now offer both options, and some employees split contributions between the two.
You have four options when leaving an employer: (1) leave the money in the former plan if the balance is above the plan's minimum (typically $7,000), (2) roll it over to your new employer's 401(k) plan if accepted, (3) roll it over to a Traditional IRA — preserves tax-deferred status and usually offers more investment choices, (4) cash it out — generally a poor choice because of the 10% early-withdrawal penalty (under age 59½) plus federal and state income tax on the full distribution. The IRS rules for rollovers are explained in Publication 590-A. A direct trustee-to-trustee rollover avoids any withholding issues.
An employer match is a contribution your employer makes to your 401(k) based on your own contribution, up to a plan-specified limit. A common formula is "100% of the first 3%, then 50% of the next 2%" — which gives a maximum match of 4% of pay if you contribute at least 5%. Match dollars are subject to vesting (you might forfeit them if you leave before fully vested), but assuming you stay long enough, they are pure additional compensation. The Department of Labor EBSA publication on 401(k) plans confirms the match is part of total compensation. Failing to contribute at least enough to capture the full match is widely treated in personal-finance literature as one of the most expensive common mistakes.
The standard rule is age 59½ — after that, withdrawals are taxed as ordinary income (Traditional) or tax-free (qualified Roth), with no IRS 10% early-withdrawal penalty. Several exceptions allow penalty-free access before 59½: separation from service in the year you turn 55 or later (the "Rule of 55"), disability, certain medical expenses exceeding 7.5% of AGI, Substantially Equal Periodic Payments (SEPP / 72(t) distributions), and a few others enumerated in IRS Publication 575. Roth 401(k) earnings additionally require a 5-year holding period from your first Roth 401(k) contribution to qualify for tax-free withdrawal. The Required Minimum Distribution (RMD) age, after which withdrawals are mandatory, was raised to 73 (age 75 starting 2033) by SECURE 2.0.
Yes — they are separate plans with separate limits. The 2025 401(k) employee limit ($23,500) and the IRA contribution limit ($7,000, or $8,000 with age-50 catch-up) are entirely independent, so a single saver under 50 could contribute up to $30,500 across both. However, IRA DEDUCTIBILITY for Traditional contributions phases out at higher incomes when you (or your spouse) are also covered by a workplace plan; the phase-out ranges are published annually by the IRS and updated in the COLA notice. Roth IRA contributions phase out by income separately. The IRS Retirement Topics — IRA Contribution Limits page lists the current numbers.
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