401(k)
Also: 401k, 401(k), 401(k) plan, traditional 401k
An employer-sponsored retirement account funded with pre-tax payroll deferrals. 2025 elective deferral limit is $23,500, with a $7,500 catch-up for age 50+ and an additional $11,250 catch-up for ages 60-63.
A 401(k) is a qualified defined-contribution retirement plan under IRC Section 401(k). Pre-tax deferrals reduce current wages, grow tax-deferred, and are taxed as ordinary income at distribution. The 2025 elective deferral limit is $23,500 ($31,000 with age-50 catch-up, $34,750 under SECURE 2.0 for ages 60 to 63). The all-sources limit, including employer match and after-tax contributions, is $70,000 ($77,500 / $81,250 with catch-ups).
Example: a senior engineer earning $350,000 defers the full $23,500 pre-tax, plus her employer matches 6% of salary up to $21,000. The $44,500 combined contribution grows tax-deferred. At a 32% federal plus 10% state bracket, the pre-tax deferral saves roughly $9,870 of current tax.
Common mistake: front-loading deferrals to the first six months of the year at a company with match-per-paycheck. The match stops once the $23,500 employee cap is hit, forfeiting match in the last six paychecks. Confirm whether the plan has a true-up provision.
The 401(k) matters at every paycheck setting, during open enrollment, at mid-year raise adjustments, and when sizing pre-tax versus Roth deferral splits based on expected retirement bracket.
Articles referencing 401(k)
- Asset Location: Roth vs Traditional for Equity-Heavy Savers
Where you hold each asset class matters almost as much as what you hold. For equity-heavy savers, asset location between Roth, traditional, and taxable accounts can shift after-tax wealth by 15-20%.
- Mega-Backdoor Roth: The After-Tax 401(k) Strategy for RSU-Heavy Earners
RSU-heavy earners can push ~$46,000 of after-tax dollars into a Roth through the mega-backdoor, here's how the plan mechanics work and who qualifies in 2025.
- Net Unrealized Appreciation (NUA) from 401(k) Employer Stock at Retirement
If your 401(k) holds company stock purchased at low prices, NUA under IRC §402(e)(4) can convert most of the gain into long-term capital gains instead of ordinary income.
- Roth Conversion Ladders in Low-Income Years (Between Jobs, Sabbatical, Pre-Social-Security)
A year of low earned income is a gift for Roth conversions. Fill the 12% and 22% brackets with pre-tax IRA dollars and compound them tax-free for decades.