What is a 401(k)?
A 401(k) is an employer-sponsored retirement savings account. It is designed to make investing seamless by letting you automatically deposit a specific percentage of each paycheck directly into the account before it ever reaches your personal bank account.
Employer Match?
Many companies offer a matching program as a workplace benefit. If your company offers a match, they will contribute a certain amount to your account based on what you put in. For example, they might contribute $1 for every $2 that you contribute up to a certain percentage of your salary.
The Two Types of 401(k) Accounts
Just like IRAs, there are two kinds of 401(k):
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Traditional 401(k): A traditional 401(k) contains pre-tax dollars, but you will pay income tax on withdrawals.
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Roth 401(k): Contributions to a Roth 401(k) are made with after-tax dollars but you do not have to pay taxes on your withdrawals.
The 2026 401(k) Rules & Limits
Because these accounts are heavily incentivized by the government, they come with a few strict guidelines:
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Contribution Limits: For 2026, you can personally contribute up to $24,500 into a 401(k). This cap applies whether you use a Traditional 401(k), a Roth 401(k), or split your money between both. However, your employer's matching contributions do not count toward this personal limit.
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Catch-Up Contributions: If you are 50 years or older, you can contribute an additional $8,000 in 2026, pushing your total annual limit to $32,500.
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Withdrawal Age: Because these are strictly retirement accounts, you must wait until age 59.5 to withdraw your money, or you will face standard income taxes plus a 10% early withdrawal penalty.