Personal Finance & Estate › Retirement accounts & pensions
401(k) plan
Since 1978· Account or plan
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
An employer-sponsored savings plan: workers defer part of each paycheck, pre-tax or Roth, often with an employer match.
See it on the Personal Finance & Estate map →How it works
Congress added Section 401(k) to the tax code in 1978; consultant Ted Benna built the first salary-deferral plan around 1980–81. In 2026 a worker can defer $24,500, plus $8,000 from age 50, or $11,250 at ages 60–63. Employer money counts toward a $72,000 total. Pre-tax money grows tax-deferred and is taxed as income when withdrawn. Main traps: high-fee funds and cashing out when changing jobs. Pre-tax versus Roth is a judgment call for your CPA.
Why it matters for you
It replaced the pension as most Americans' main retirement account, shifting investment risk and choices from employers to workers.
Think of it like
Like a building's replacement reserve: small automatic deposits from every paycheck, left untouched for decades.
Rules, limits and sources (2026)
IRC Sec. 401(k); IRS limits in Notice 2025-67; Investment Company Institute data (about $9 trillion in 401(k)s, 2025); plans file a yearly Form 5500.
Watch out for
Whether 401(k)s alone can fund retirement for most workers, given many low balances, is debated by economists.
Inside this (6)
Connections (10)
▸Roth 401(k) is the after-tax option inside 401(k) planLaw or rule (2026)
How they connect
A Roth 401(k) is not a separate plan but a 'designated Roth account' inside the same 401(k). Workers split one $24,500 deferral limit between pre-tax and Roth, use the same investment menu, and get the same employer match, which stays pre-tax unless the plan offers Roth matching.
When it applies
Authorized by the 2001 EGTRRA tax law; employers could first offer it on January 1, 2006, and a 2006 law made it permanent.
The rule
IRC Sec. 402A defines designated Roth accounts as part of a 401(k), 403(b) or governmental 457(b) plan.
Watch out for
Employers choose whether to offer it; most large plans now do, but why so few workers use it is debated.
▸Solo 401(k) (owner-only plan) is a one-owner version of 401(k) planLaw or rule (2026)
How they connect
A solo 401(k) follows the same tax-code section and dollar limits as a company 401(k), but covers only an owner and spouse. With no other employees there's no nondiscrimination testing, so the owner can stack employee deferrals and employer profit-sharing up to the $72,000 cap.
When it applies
Made practical by the 2001 EGTRRA law, effective 2002, which stopped deferrals from counting against the employer's 25% deduction limit.
The rule
The IRS 'One-Participant 401(k) Plans' page says it is not a new plan type but a traditional 401(k) covering only the owner.
Watch out for
When a part-time hire becomes eligible under SECURE's long-term part-time rules, and what that does to a solo plan, can be unclear.
▸2026 contribution limits & catch-up rules cap yearly deposits into 401(k) planLaw or rule (2026)
How they connect
The IRS caps what you can defer from pay into a 401(k): $24,500 in 2026, plus $8,000 at 50+ or $11,250 at ages 60–63. Employee plus employer money tops out at $72,000. High earners' catch-ups must now be Roth. The cap is per person, so two jobs share one limit.
When it applies
Set each fall by the IRS (Notice 2025-67 for 2026) under tax code sections 402(g) and 415(c); the SECURE 2.0 Act of December 2022 added the newest catch-up rules.
The rule
The figures are published law; plan administrators enforce them, and excess deferrals must be returned by April 15 to avoid double taxation.
Watch out for
Plans differ on offering the 60–63 catch-up, and practice on the Roth catch-up rule is still settling before final regulations bind in 2027.
▸Employer match & vesting schedules adds employer money to 401(k) planStandard practice
How they connect
The employer match is the main incentive in most 401(k)s: when you defer, the employer adds money, often 3–6% of pay. Vesting rules decide when that employer money becomes yours; unvested amounts are forfeited when you leave and go back to the plan.
When it applies
Set by each employer's plan document within federal limits; new plans must auto-enroll workers from 2025, which raises match take-up.
How sure?
Summary plan descriptions spell out each formula; Vanguard's 'How America Saves' and Plan Sponsor Council surveys report typical match levels.
Watch out for
Economists debate how much matches raise total saving versus shifting money workers would have saved anyway.
▸403(b) & 457(b) plans (nonprofit & government) are nonprofit and government cousins of 401(k) planLaw or rule (2026)
How they connect
403(b) and 457(b) plans copy the 401(k) model for employers that don't use one: public schools, hospitals and charities (403(b)) and state and local governments (457(b)). They have the same deferral limit, Roth options and rollovers, but differ on penalties, catch-ups and ERISA coverage.
When it applies
403(b) dates from 1958 and 457(b) from 1978; laws in 2001, 2006 and 2022 pulled both closer to 401(k) rules.
The rule
The IRS plan comparison chart shows shared limits and rollover rules; IRC Sec. 402(g) caps 401(k) and 403(b) deferrals together.
Watch out for
Whether 403(b)s should get the same low-cost pooled funds as 401(k)s is a live policy debate in Congress.
▸SECURE Act (2019) & SECURE 2.0 (2022) rewrote many rules for 401(k) planLaw or rule (2026)
How they connect
The two SECURE laws changed 401(k)s more than any law since 2006: mandatory auto-enrollment for new plans, part-time worker eligibility, ages 60–63 'super' catch-ups, Roth employer contributions, student-loan matching, small emergency withdrawals and, from 2026, Roth-only catch-ups for higher earners.
When it applies
Enacted December 2019 and December 2022; provisions phase in from 2020 through 2027, administered by the IRS and the Labor Department.
The rule
Statute text and IRS notices (e.g., Notice 2023-62 delaying Roth catch-ups to 2026); most plans must adopt amendments by the end of 2026.
Watch out for
How many employers adopt the optional features, and whether auto-enrollment's gains last, remain to be seen.
▸401(k) plan defers Income tax (federal & California)Law or rule (2026)
How they connect
Traditional 401(k) contributions, up to $24,500 in 2026, come out of pay before federal and California income tax, and growth is untaxed until withdrawal. Withdrawals are then taxed as ordinary income at whatever rate applies in retirement. Roth 401(k) dollars flip this: taxed now, tax-free later.
When it applies
Section 401(k) was added by the Revenue Act of 1978; IRS rules in 1981 let employers offer salary deferrals.
The rule
IRC Secs. 401(k) and 402(g); W-2 Box 12 code D shows deferrals excluded from taxable wages.
Watch out for
Whether deferring pays off depends on future tax rates, which nobody knows; that is the core of the traditional-versus-Roth debate.
▸10% early-withdrawal penalty & exceptions (before 59½) also applies to 401(k) planLaw or rule (2026)
How they connect
The same 10% penalty applies to 401(k)s before 59½, but the exceptions differ. Workplace plans add the 'rule of 55' for leaving a job at 55 or later, and loans avoid it if repaid. They lack the IRA's first-home and college exceptions. Rolling a 401(k) into an IRA forfeits the age-55 option.
When it applies
IRC Sec. 72(t)(2)(A)(v) sets the age-55 exception (age 50 for public-safety workers); governmental 457(b)s skip the penalty entirely.
The rule
The IRS 'Exceptions to tax on early distributions' chart lists each exception by plan type; claims go on Form 5329.
Watch out for
Hardship withdrawals still owe the penalty unless an exception applies; many workers assume otherwise, and plan rules vary.
▸Dollar-cost averaging happens automatically in 401(k) planStandard practice
How they connect
Every paycheck, a 401(k) invests a fixed share of pay in the chosen funds, so workers buy more shares when prices are low and fewer when high, without deciding when to invest. Auto-enrollment and automatic yearly increases make that steady saving the default.
When it applies
Every payroll period for tens of millions of US workers; target-date funds are now the most common default investment.
How sure?
Plan payroll records; Vanguard's 'How America Saves' shows most participants keep contributing through market swings.
Watch out for
Vanguard research (2012) found investing a lump sum at once beat spreading it out about two-thirds of the time; with paychecks, there's no lump sum.
▸U.S. Dept. of Labor, Employee Benefits Security Admin. oversees fiduciaries of 401(k) planLaw or rule (2026)
How they connect
EBSA enforces ERISA's fiduciary rules for 401(k)s: employers and plan committees must choose and monitor investments prudently, keep fees reasonable, deposit employee deferrals promptly, and avoid self-dealing. It investigates, can force restitution, and requires fee disclosures to participants.
When it applies
Washington and regional offices; participant fee-disclosure rules took effect in 2012; employers file Form 5500 yearly with the DOL and IRS.
The rule
ERISA Title I and DOL regulations (Sec. 2550.404a-5 fee disclosures); EBSA's yearly enforcement reports list monetary recoveries.
Watch out for
The Labor Department's rule on when rollover advice counts as fiduciary advice has been rewritten and blocked in court repeatedly since 2016.