A 401(k) is a staple for many people’s retirement planning, so it’s important to understand how they work. Browse Investopedia’s expert-written library to learn more.

Frequently Asked Questions
  • What are the 401(k) withdrawal rules?

    Contributions and earnings in a Roth 401(k) can be withdrawn if you are at least 59½ and have had your account for at least five years. If you withdraw from your 401(k) before then, you’ll have to pay income tax on the amount you withdraw as well as a 10% IRS tax penalty on some of the amount. Withdrawals can be made without penalty if you become disabled or by a beneficiary after your death.

  • What is a good 401(k) match?

    If your company offers an employer-sponsored retirement plan, chances are it’s a 401(k). If you’re lucky, your employer might even match some of your contributions to that account, meaning you get free money added to your retirement savings. The average match by employers was 4.5%, according to Vanguard's annual report on investing behavior.

  • When does paying off debt with a 401(k) make sense?

    Withdrawing early from your 401(k) should be a last resort. If you withdraw money from your 401(k) before retirement, you’re going to encounter some fees and penalties, not to mention impact your retirement savings. Knowing this, you should do everything in your power to reduce your debt in other ways, like negotiating with your credit companies, or taking out a loan from your 401(k). This way, you pay the money back to your retirement account without losing the money in your account.

  • Are 401(k) contributions tax deductible?

    Contributions made to traditional 401(k)s and other qualified retirement plans are made with pre-tax dollars, so they are deductible from your taxable income. This works out in your favor, as the money you contribute to your 401(k) actually shrinks your total income for the year, in turn slightly reducing your taxes as well. However, there are limits to how much you can contribute to these plans. For 2021, the limit is $19,500, and in 2022 the amount goes up to $20,500.

  • What happens to a 401(k) after you leave your job?

    There are several options of what you can do with your 401(k) after you leave your job. If the account has more than $5,000 in it, most plans allow you to leave it where it is. Alternatively, you can roll the balance over into your new 401(k) at your new job. This is beneficial because then your interest is still compounding on the whole amount, instead of compounding on two smaller amounts in two different 401(k)s. Lastly, you can choose to cash out your 401(k), though this is usually not recommended as you’ll have to pay fees and penalties on the amount and you will lose out on retirement savings.

Key Terms

Explore 401(k)

Beginner’s Guide to the Types of 401(k)s
Two People Discuss Assets in an Office
How to Talk to HR About Your 401(k) Options
Two Small-Business Owners Working on Computers and Packing Merchandise
How to Create a 401(k) for Your Employees
A man sitting on a sofa looking at his laptop with a cup of coffee in his hand
401(k) Scams & Risks: What to Watch for, Fighting Back
An older couple takes a hike.
What to Do If You Can’t Max Out Your 401(k)
Two employees review documents in an office setting
Do You Really Need Fixed-Income Funds in Your 401(k)?
Woman over age 50 looking at phone
How Do 401(k) Catch-Up Contributions Work?
A man looks at his mutual fund investments on his tablet at home at night
How to Narrow Down Your 401(k) Investment Choices
Woman tracking investments
Should I Put an Annuity into My 401K?
A woman works on a laptop and drinks coffee.
Target-Date Funds vs. Lifecycle Funds
Homebuyers talk with a real estate agent in front of a house.
Will a Loan on My 401(k) Affect My Mortgage?
Three co-workers have a discussion in a corporate setting
How to Compare Your 401(k)
An older executive reviews paperwork in an office.
How to Use a 3-Fund Portfolio in Your 401(k)
An older employee holds coffee and checks her phone.
Companies That Offer the Biggest 401(k) Employer Match
Co-workers discuss their 401(k) program at work during an HR meeting.
Should You Max Out Your 401(k) Early in the Year?
Two executives have a discussion over paperwork.
Should You Roll Over an Old 401(k) to a New 401(k)?
An hourly worker hands a coffee to a customer.
How Many Hours a Workweek to Qualify for a 401(k)?
Teenagers in car
401(k) Age Limits: Can You Be Too Young for One?
Busy cash register checkout counters wait on customers at Target in Saugus, Mass., on Jan. 19, 2019.
Must Companies Offer 401(k)s to Hourly Workers?
Woman reviewing investments in life insurance with daughter in background
How to Pay Back a 401(k) Loan
A man in a home uses a phone.
Could My Company Steal My 401(k) Funds?
Older couple having breakfast
Are 401(k)s Replacements for Pensions?
Two business executives review documents.
Income Limits for 401(k)s: Highly Compensated Employees
John Bogle
Bogle Asset Allocation for Your 401(k)
Man working at computer
Coordinate Your 401(k) Investments with the Rest of Your Portfolio
Woman sitting in front of a laptop computer
How to Evaluate Your 401(k) Options
A person sits on a porch swing.
Should I Participate in a 401(k) Without a Match?
Two women discussing potential life insurance beneficiaries
What Are the 401(k) Beneficiary Rules?
Woman looking at financial documents
How Does Your 401(k) Balance Compare With the Average?
A real estate agent shows a home to a potential buyer.
What Is the Debt-to-Income Ratio You Need for a Home Equity Loan?
Male worker in office looking at laptop
How to Become a 401(k) Administrator
An older couple enjoys the outdoors.
Does a Company Have to Offer a 401(k) to Every Worker?
Co-workers discuss their 401(k) program at work during an HR meeting.
Can You Have a 401(k) Without an Employer Match?
Volunteer serving food at community kitchen
401(k)s and Qualified Charitable Donations
An older couple enjoys coffee on their porch.
401(k) vs. RRSP: What’s the Difference?
Pros and Cons of Holding Crypto in a 401(k)
A woman choose ultra-short bond investments for her portfolio using her computer.
What Are the Safest Investments for a 401(k)?
Colleagues working on cyber security issues in control room
What Are the DOL Rules for 401(k) Cybersecurity?
Worried woman looking at past due financial bills at home
What if My 401(k) Isn't Performing?
A couple plans for retirement by discussing life-cycle funds with an advisor.
Are 401(k) Custodians Fiduciaries?
A person uses a phone calculator while looking at his bank account history.
Reasons To Consolidate Retirement Accounts
Blockchain search
How Blockchain Can Change 401(k)s
A man calculates his after-tax 401(k) contributions
401(k) Vesting Rules
Hispanic man paying bills on computer
What To Do if Your Company Offers a Subpar 401(k) Option
Choosing between traditional or Roth 401k
Are Expense Ratios Higher for Fund Options in a 401(k)?
Couple Spa Day
How the Superrich Use 401(k)s
Adult woman using a laptop with her father at home
Inherited 401(k) Options and Rules You Must Follow
Fidelity Investments Building Window
How Does the Fidelity 401(k) That Allows Crypto Work?
A couple working on a laptop on their kitchen counter
What Laws Govern 401(k)s?
Woman signing paper
Should I Put My IRAs Into My Company’s 401(k)?
older person sitting at computer doing work with red coffee cup in front of him
The Rule of 55
Woman looking over finances
What Is the Impact of Inflation on My 401(k)?
Blocks spelling "401K" sit atop ascending stacks of coins
What Is a 401(k) True-Up?
Going out of business sign on a building with shopping carts in front
If My Company Closes, What Happens to My 401(k)?
Happy couple with laptop computer
Can You Contribute to Someone Else’s 401(k)?
401(k) statement and pie chart next to a pen, calculator, and coffee mug
How To Read Your 401(k) Plan Reports
A group of young people in a coffee shop working on laptops
Investing in Your HSA vs. Your 401(k)
Financial statements from private equity funds
401(k) Plans Can Now Invest in Private Equity Funds
How to Lower Your 401(k) Fees
How to Lower Your 401(k) Fees
Pensions and 401(k)s
Can You Have a Pension and a 401(k)?