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How to Get the Most From Your 401(k)
A 401(k) is the most powerful tax-advantaged retirement account available to most American workers. Contributions reduce your taxable income today (traditional) or grow tax-free (Roth), and many employers add free money on top through matching contributions.
Always Capture the Full Employer Match First
An employer match is an immediate 50–100% return on your contribution — nothing else in finance comes close. If your employer matches 50% up to 6% of salary, contributing at least 6% gives you a guaranteed 50% return before the market does anything. Not contributing enough to capture the full match is leaving part of your compensation on the table.
Traditional vs Roth 401(k)
Traditional 401(k) contributions reduce your taxable income now and you pay taxes on withdrawals in retirement. Roth 401(k) contributions use after-tax dollars but all growth and withdrawals are tax-free. The right choice depends on whether you expect to be in a higher or lower tax bracket in retirement. Generally: Roth if you're early career (lower bracket now), Traditional if you're peak earning (higher bracket now).
2026 Contribution Limits
- Employee contribution limit: $24,500 (up from $23,500 in 2025)
- Catch-up contribution (age 50+): Additional $8,000, for a total of $32,500
- Catch-up contribution (age 60–63): Additional $11,250, for a total of $35,750
- Total limit including employer contributions: $72,000 (or $80,500 with catch-up)
The Power of Starting Early
Contributing $500/month starting at age 25 grows to about $1.2 million by age 65 (at 7% return). Starting at 35 with the same contributions reaches only $567,000 — less than half, despite contributing for only 10 fewer years. The extra decade is worth more than all the contributions made in it.
Frequently Asked Questions
How does the employer match actually work? ▼
The most common match is "50% of your contribution up to 6% of your salary." This means if you earn $70,000 and contribute 6% ($4,200), your employer adds 50% of that — $2,100 — for a total of $6,300 going into your 401(k). To get the full match, you must contribute at least up to the match cap (6% in this example). Contributing less means you miss free money.
What is vesting and how does it affect my employer match? ▼
Vesting refers to your ownership of employer contributions. Your own contributions are always 100% yours. Employer matches often vest over a schedule — either "cliff vesting" (0% until a certain year, then 100%) or "graded vesting" (increasing % each year). If you leave a job before you're fully vested, you may forfeit some or all of the employer contributions. Check your plan's vesting schedule before leaving a job.
Can I contribute to both a 401(k) and an IRA? ▼
Yes. You can contribute to both a 401(k) and an IRA in the same year. The $24,500 401(k) limit and the $7,500 IRA limit are completely separate. However, the deductibility of traditional IRA contributions phases out at higher incomes if you (or your spouse) are covered by a workplace plan. Roth IRA eligibility also phases out at higher incomes ($153,000–$168,000 for single filers, $242,000–$252,000 for married filing jointly in 2026).
What happens to my 401(k) if I change jobs? ▼
You have several options: roll it over to your new employer's 401(k), roll it to an IRA (usually the most flexible option), cash it out (not recommended — you'll owe income taxes plus a 10% early withdrawal penalty if under 59½), or leave it in your former employer's plan. Rolling to an IRA gives you the most investment choices and keeps the money growing tax-deferred.
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