401(k) and Retirement Guide 2026

401(k) Basics

A 401(k) is an employer-sponsored retirement plan that allows you to save and invest a portion of your paycheck before taxes are taken out. Many employers match your contributions up to a certain percentage.

2026 Contribution Limits

• Employee contribution: $24,500
• Catch-up contribution (50+): $7,500 additional
• Total limit (employee + employer): $69,000 ($76,500 with catch-up)

Employer Matching

Employer matching is free money. Common formulas include: 50% of your contributions up to 6% of your salary, 100% up to 3%, or dollar-for-dollar up to 4%. Always contribute at least enough to get the full match.

Example: If you earn $80,000 and your employer matches 50% up to 6%, contributing $4,800 (6%) gets you an additional $2,400 from your employer—an instant 50% return.

Traditional vs Roth 401(k)

Traditional 401(k)

• Pre-tax contributions
• Reduces your taxable income now
• Pay taxes on withdrawals in retirement
• Best if you expect to be in a lower tax bracket in retirement

Roth 401(k)

• After-tax contributions
• No tax reduction now
• Tax-free withdrawals in retirement
• Best if you expect to be in a higher tax bracket in retirement

Early Withdrawal Penalties

Withdrawing money before age 59½ generally results in regular income tax plus a 10% penalty. Exceptions include: financial hardship, unreimbursed medical expenses exceeding 7.5% of income, disability, or first-time home purchase (up to $10,000).