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401(k) plans: a beginner's guide

Understand the payroll contribution, tax treatment, employer match, vesting rules, investment menu, and fees before changing your election.

Written by Andrés Hernán BianciottiUpdated August 11, 2026Sources: IRS and US Department of Labor
2026 limit snapshot: The IRS lists a $24,500 employee elective deferral limit for traditional and safe harbor 401(k) plans. A plan may impose a lower limit, and aggregation and catch-up rules can apply. Always check the current IRS guidance and your plan.

What is a 401(k)?

A 401(k) is an employer-sponsored retirement plan feature that lets eligible employees direct part of their wages into an individual plan account. Employers may also contribute. The plan document controls eligibility, matching, investment options, distributions, and other details.

Traditional versus Roth 401(k)

Traditional 401(k)Designated Roth 401(k)
ContributionGenerally pre-tax for federal income tax purposesIncluded in current taxable income
Investment growthTax-deferredPotentially tax-free for qualified distributions
DistributionGenerally included in taxable incomeQualified distributions generally excluded

The better fit depends on current and future tax circumstances, plan rules, and other factors. A Roth 401(k) is not the same account as a Roth IRA.

Employer match and vesting

A match is an employer contribution tied to your contribution under a formula in the plan. Read the Summary Plan Description. Your own elective deferrals are fully vested, but employer contributions may follow a vesting schedule. If you leave before vesting, you may forfeit part of those employer contributions.

Investment choices and fees

A 401(k) usually offers a limited menu. Compare objectives, diversification, risk, expense ratios, administrative fees, and whether an option duplicates assets you hold elsewhere. A target-date fund changes its allocation over time but still has risk and fees.

A practical enrollment checklist

  1. Find the match formula and the contribution needed to receive the full available match.
  2. Check when you become eligible and when employer contributions vest.
  3. Compare traditional and Roth availability.
  4. Review each investment option's prospectus, expenses, and risk.
  5. Name beneficiaries and keep them current.
  6. Understand loan, hardship, rollover, and distribution rules before using them.
  7. Review your election after pay or household changes.

Official sources

Tax rules and limits change. This page is a general introduction. Confirm current IRS rules and your plan documents before acting.

Next: Understand Roth IRAs →