401(k)

Imagine your employer saying, "For every dollar you save for retirement, we'll chip in 50 cents." That's essentially what a 401(k) with employer matching does — and it's the most common retirement plan in the US.

You choose how much of each paycheck goes into your 401(k). That money gets invested in funds you pick from your plan's menu. In 2025, you can contribute up to $23,500 (or $31,000 if you're 50 or older, thanks to catch-up contributions). Employer matching doesn't count toward that limit. The total combined cap — your contributions plus your employer's — is $70,000 ($77,500 with catch-up).

There are two flavors. A traditional 401(k) lowers your taxable income now, but you'll pay taxes when you withdraw in retirement. A Roth 401(k) uses money you've already paid taxes on, but withdrawals in retirement — including all the growth — are completely tax-free.

Employer matching is essentially free money. A common setup: your company matches 50% of what you contribute, up to 6% of your salary. If you earn $100,000 and contribute 6% ($6,000), your employer adds $3,000. That's an instant 50% return on the matched portion. Not contributing enough to grab the full match? You're leaving money on the table.

Your investment choices inside a 401(k) are limited to what the plan offers — usually a mix of mutual funds, target-date funds, and sometimes a brokerage window. Fees vary a lot between plans. When you leave a job, you can roll your 401(k) into an IRA for more options and potentially lower costs.