Salary FYI

401(k)

Benefits

A US employer-sponsored defined-contribution retirement plan that allows employees to save pre-tax or Roth (after-tax) dollars, often with an employer matching contribution.

## 401(k)

The 401(k) is the primary retirement savings vehicle for US employees. Named after Section 401(k) of the Internal Revenue Code, it enables tax-advantaged savings.

### Contribution Limits (2025)

| Type | Limit |
|------|-------|
| Employee (under 50) | $23,500 |
| Employee (50+, catch-up) | $31,000 |
| Employee + Employer combined | $70,000 |

### Employer Match

Common matching formulas:
- 50% of contributions up to 6% of salary (most common).
- 100% of contributions up to 3% + 50% of next 2%.
- Dollar-for-dollar up to 4–6% of salary (generous).

### Traditional vs. Roth 401(k)

| Feature | Traditional | Roth |
|---------|-----------|------|
| Contribution tax | Pre-tax (reduces current taxable income) | After-tax |
| Withdrawal tax | Taxed as ordinary income | Tax-free (if qualified) |
| Best when | Current rate > retirement rate | Current rate < retirement rate |

### Employer Match Value

A 6% match on a $100,000 salary is $6,000/year of free money — equivalent to a 6% pay raise. Not contributing enough to get the full match is leaving compensation on the table.