A 401(k) is a retirement savings plan offered through your employer. It’s one of the most powerful ways to build wealth, especially if your employer matches what you save.
How it works
You choose a percentage of each paycheck to contribute, and it goes into your 401(k) automatically. You then choose investments from the plan’s menu, often mutual funds or target-date funds.
- Traditional 401(k): contributions come out before income tax, lowering your taxable income today. You pay tax when you withdraw in retirement.
- Roth 401(k) (if your plan offers it): contributions are made after tax, and qualified withdrawals in retirement are tax-free.
2026 contribution limits (IRS)
- $24,500 in employee contributions
- $8,000 extra catch-up contribution if you’re 50 or older, with a higher catch-up of $11,250 for ages 60 to 63
- Starting in 2026, catch-up contributions for higher earners must be made as Roth contributions.
Don’t leave free money on the table
Many employers match part of what you contribute, for example 50 cents for every dollar up to 6% of your pay. That’s an instant return on your money. If your employer offers a match, contributing at least enough to get the full match is one of the smartest moves you can make. Check your plan’s vesting schedule to see when the matched money becomes fully yours.
Who it may suit
Nearly every employee with access to one, especially those whose employer offers a match.
What to watch for
- Withdrawals before age 59½ are generally subject to income tax plus a 10% penalty, with some exceptions.
- Investment choices are limited to the plan’s menu, and fees vary by plan.
- Required minimum distributions generally begin at age 73 (75 for those born in 1960 or later).
- Investments can lose value.
See how your retirement savings compare with the national average. Get your Wealth Report Card.
Source: IRS, 2026 cost-of-living adjustments (IR-2025-111). For educational purposes only; not tax or investment advice. Workable Financial Solutions does not offer securities or investment advisory services. Consult a tax professional about your situation.