US: 401(k) plans and the employer match

A 401(k) is an employer-sponsored retirement account in the US and, for most workers, the centrepiece of retirement saving.

How it works

• You contribute a percentage of each paycheck, up to an annual IRS limit.
• Traditional 401(k): contributions are pre-tax, lowering today's taxable income; you pay tax on withdrawals in retirement.
• Roth 401(k): contributions are after-tax, but withdrawals in retirement are tax-free.
• Investments (usually mutual funds) grow tax-deferred.

The employer match — free money

Many employers match part of your contributions (e.g. 50% of the first 6%). This is an immediate, guaranteed return on your money. Always contribute at least enough to get the full match — passing it up leaves free money on the table.

Things to know

• Access: withdrawals before age 59½ usually incur taxes and a penalty; it's long-term money.
• Rollovers: when you change jobs, roll the balance into an IRA or your new 401(k) to keep it growing.
• Watch fees: choose low-cost index funds within the plan.

Key takeaway

The 401(k) combines tax advantages, automatic payroll investing, and — crucially — the employer match. Capturing the full match is often the highest-return move in personal finance. Confirm current contribution limits.