Salary FYI

401(k) Plan

Investing

A tax-advantaged retirement savings plan offered by US employers that allows employees to contribute pre-tax income, often with an employer match.

## 401(k) Plan

A 401(k) is a defined-contribution retirement plan named after Section 401(k) of the US Internal Revenue Code. It is the most common employer-sponsored retirement vehicle in the United States, covering over 60 million active participants.

### Contribution Limits (2026)

| Type | Limit |
|------|-------|
| Employee elective deferral | $23,500 |
| Catch-up (age 50+) | $7,500 additional |
| Total (employee + employer) | $70,000 |

### Tax Treatment

**Traditional 401(k)**: Contributions reduce taxable income in the year they are made. Withdrawals in retirement are taxed as ordinary income.

**Roth 401(k)**: Contributions are made with after-tax dollars, but qualified withdrawals in retirement are entirely tax-free, including investment gains.

### Employer Match

A common employer match formula is 50% of contributions up to 6% of salary. On a $100,000 salary, contributing 6% ($6,000) yields a $3,000 employer match — an immediate 50% return on invested money.

### Vesting

Employer contributions may be subject to a vesting schedule (e.g. 3-year cliff or 6-year graded), meaning employees must stay a certain period to keep the employer's contributions.