401(k)
An employer-sponsored retirement savings plan that lets you contribute pre-tax income (or after-tax with Roth 401(k)). The 2025 employee contribution limit is $23,500.
A 401(k) is a tax-advantaged retirement savings plan offered by employers. Employees can contribute a portion of their salary — up to $23,500 in 2025 — on a pre-tax basis, meaning contributions reduce your taxable income in the year they are made. Withdrawals in retirement are taxed as ordinary income.
Many employers match a portion of your contributions, commonly 50% to 100% of the first 3% to 6% you contribute. Employer matches are essentially free money and represent an immediate 50% to 100% return on your contribution. The combined employee and employer contribution limit for 2025 is $70,000.
Workers age 50 and older can make catch-up contributions of an additional $7,500 in 2025. Many plans also offer a Roth 401(k) option, where contributions are made with after-tax dollars but qualified withdrawals in retirement are entirely tax-free. Choosing between traditional and Roth depends largely on whether you expect your tax rate to be higher or lower in retirement.
Related Terms
Traditional IRA
An individual retirement account where contributions may be tax-deductible and investments grow tax-deferred. The 2025 contribution limit is $7,000 ($8,000 if age 50+).
Roth IRA
A retirement account funded with after-tax dollars. Qualified withdrawals in retirement — including all growth — are completely tax-free. The 2025 contribution limit is $7,000 ($8,000 if 50+).
Employer Match
A contribution your employer makes to your 401(k) or similar retirement plan based on how much you contribute, often matching 50% to 100% of the first 3% to 6% of your salary.
Catch-Up Contribution
Additional retirement plan contributions allowed for workers age 50 and older — $7,500 extra for 401(k) plans and $1,000 extra for IRAs in 2025.