401(k) Plans: Overview and How They Work

A 401(k) is an employer-sponsored retirement plan allowing pre-tax salary contributions, reducing taxable income. Contributions grow tax-deferred until withdrawal, taxed as ordinary income. Employers often match contributions, encouraging participation. The 2026 limit is $24,500, with catch-up contributions for those 50+. Early withdrawals before 59½ incur penalties and taxes. Required Minimum Distributions start at age 73 for traditional accounts; Roth 401(k)s have no RMDs. Direct rollovers avoid taxes when changing jobs.