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.