401(k) Retirement Plans
Explore and manage your 401(k) retirement investments with our comprehensive tools and resources.
Average 401(k) Balance
$112,500
+4.2%
Annual Contribution Limit
$22,500
2023
Catch-up Contribution
$7,500
Age 50+
Employer Match Average
4.7%
+0.3%
401(k) Basics
What is a 401(k)?
A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute a portion of their salary on a pre-tax basis. Many employers offer matching contributions, making it a powerful tool for retirement savings.
Contributions grow tax-deferred until withdrawal in retirement, when they are taxed as ordinary income.
Key Benefits
- Tax-deferred growth on investments
- Potential employer matching contributions
- Higher contribution limits than IRAs
- Automatic payroll deductions make saving easy
- Loan options may be available in some plans
Common 401(k) Investment Options
Target-Date Funds
Diversified portfolios that automatically adjust asset allocation as you approach retirement.
Index Funds
Low-cost funds that track specific market indexes like the S&P 500.
Bond Funds
Fixed-income investments that provide regular interest payments.
International Funds
Investments in companies based outside your home country for diversification.
Sector Funds
Focus on specific industries like technology, healthcare, or energy.
Money Market Funds
Low-risk investments in short-term debt securities.
Contribution Strategies
Maximize Employer Match
Contribute at least enough to get the full employer match - it's essentially free money. For example, if your employer matches 50% of contributions up to 6% of your salary, contribute at least 6% to get the full 3% match.
Gradual Increases
Increase your contribution percentage annually, especially when you get raises. A 1% increase each year can significantly boost your retirement savings without dramatically affecting your take-home pay.
Catch-up Contributions
If you're 50 or older, take advantage of catch-up contributions ($7,500 in 2023). This allows you to contribute beyond the standard limit to accelerate your savings as you approach retirement.
Traditional vs. Roth 401(k)
| Feature | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Contributions | Pre-tax (reduces taxable income) | After-tax (no immediate tax benefit) |
| Tax on Withdrawals | Taxed as ordinary income | Tax-free if qualified |
| Required Minimum Distributions (RMDs) | Required starting at age 72 | Required starting at age 72 |
| Early Withdrawal Penalty | 10% before age 59½ (plus taxes) | 10% on earnings before age 59½ |
| Best For | Those who expect to be in a lower tax bracket in retirement | Those who expect to be in a higher tax bracket in retirement |
401(k) Growth Calculator
Projected Balance at Retirement
Based on your inputs
401(k) Frequently Asked Questions
When you change jobs, you typically have four options for your 401(k):
- Leave it with your former employer (if allowed)
- Roll it over to your new employer's plan
- Roll it over to an IRA
- Cash it out (not recommended due to taxes and penalties)
The best option depends on your specific situation, but rolling it over to an IRA or your new employer's plan is often recommended to maintain tax advantages and avoid penalties.
Many 401(k) plans allow loans, but not all. If your plan permits loans, you can typically borrow up to 50% of your vested account balance or $50,000, whichever is less. You'll pay interest on the loan, but the interest goes back into your account.
Important considerations:
- Loan terms are usually 5 years (longer for primary home purchases)
- If you leave your job, the loan may become due immediately
- Defaulting on the loan can result in taxes and penalties
- While paying interest to yourself, you miss out on potential market gains
While both are retirement accounts, there are key differences:
401(k)
- Employer-sponsored
- Higher contribution limits ($22,500 in 2023)
- May offer employer matching
- Limited investment options
- Loans may be available
IRA
- Individual account
- Lower contribution limits ($6,500 in 2023)
- No employer matching
- Wider range of investment options
- No loan options
Many people contribute to both types of accounts to maximize their retirement savings.
You can generally withdraw from your 401(k) without the 10% early withdrawal penalty after age 59½. However, withdrawals are still subject to income tax unless they're from a Roth 401(k) and meet qualifying conditions.
There are some exceptions to the early withdrawal penalty before age 59½:
- Becoming totally and permanently disabled
- Medical expenses exceeding 7.5% of your adjusted gross income
- Qualified domestic relations orders (QDRO) in divorce cases
- Substantially equal periodic payments (SEPP)
- Certain military service
- Death (distributions to beneficiaries)