The Match Is the Whole Point
A 401(k) is a tax-advantaged account, but the feature that makes it unmatched by any other savings vehicle is the employer contribution. A 50% match on the first 6% of salary is an instant 50% return on that money, before a single dollar is invested. Nothing else in personal finance reliably pays 50%.
This produces one firm rule: contribute at least enough to capture the full match before putting money anywhere else, including into paying down moderate-rate debt. Contributing 4% when the match runs to 6% leaves 1% of salary on the table every year — on an $85,000 salary, $850 a year forfeited, which compounds to well over $80,000 across a career.
Contribution Limits
| Limit | 2025 amount |
|---|---|
| Employee elective deferral | $23,500 |
| Catch-up contribution, age 50+ | $7,500 |
| Enhanced catch-up, ages 60–63 | $11,250 |
| Total including employer contributions | $70,000 |
The employee limit applies across all 401(k) plans combined, so changing jobs mid-year does not reset it. The employer match does not count toward the elective deferral limit — it sits under the much higher total cap.
Traditional or Roth 401(k)
Most plans now offer both. A traditional deferral reduces taxable income today and is taxed on withdrawal; a Roth deferral is taxed today and comes out tax-free. The decision hinges on whether your marginal rate is higher now or in retirement. Early-career workers in low brackets usually favour Roth; high earners in peak years usually favour traditional. Employer matching contributions are always pre-tax regardless.
Vesting Turns the Match Into Yours
Your own contributions are yours immediately. The employer's are subject to a vesting schedule — commonly cliff vesting at three years, or graded vesting over five or six. Leaving before you are fully vested forfeits the unvested portion, which is a real number worth checking before accepting a new job offer.
Fees Compound Too
An expense ratio of 1% instead of 0.1% sounds trivial. Over 30 years it removes roughly a fifth of the final balance. Plan menus vary widely; the low-cost index option is often present but not the default. This is the single highest-value hour of admin available in a 401(k).
Frequently Asked Questions
How much should I contribute?
The common target is 15% of salary including the match, which for most workers means contributing 10–12% themselves. Starting lower and raising the rate by 1% each year is far more sustainable than a single large jump.
What happens to my 401(k) when I change jobs?
It stays where it is, rolls into the new employer's plan, or rolls into an IRA. Cashing it out triggers income tax plus a 10% penalty before age 59½ and is the most expensive of the four options by a wide margin.
Can I withdraw early?
Yes, with a 10% penalty and income tax, though exceptions exist for disability, certain medical expenses, and separation from service at 55 or later. Plan loans avoid the penalty but must be repaid quickly if you leave the job.