A complete guide to 401K plans: benefits, matching, 2025 limits & smart strategies. Learn more below.
1. What Makes 401K So Valuable?
The 401K is a workplace retirement plan offering tax advantages and employer matching to help employees build long-term wealth.
2. Tax Benefits: Traditional vs Roth
Traditional 401K: Pre-tax savings today, taxed withdrawals later.
Roth 401K: After-tax savings now, tax-free withdrawals in retirement.
3. Employer Matching: Free Money You Shouldn’t Miss
Employers often match a percentage of your contribution. Not contributing enough to get the full match means leaving money on the table.
4. 2025 Contribution Limits – Updated Info
- Employee Contribution Limit: $23,500
- Total Limit (employee + employer): $70,000
- Catch-Up (Age 50+): $7,500 → Total: $31,000
- Total Limit with Matching (Age 50+): $77,500
5. You Control the Investments
401K plans allow employees to choose where their money is invested—stocks, bonds, or mixed portfolios. Most plans offer risk-based tools to assist.
6. Vesting Period: When Matching Becomes Yours
Employer contributions may vest over time. Leaving the company early may forfeit some matched funds.
7. What Happens When You Change Jobs?
You can leave your 401K with your old employer, roll it into your new plan, or transfer it to an IRA—each option has its pros and cons.
8. Borrowing from Your 401K – Know the Rules
You may borrow up to $50,000 or 50% of your balance. Failure to repay triggers taxes and penalties.
9. 401K Withdrawal Rules You Should Know
- Before 59½: 10% penalty + taxes
- After 59½: No penalty, taxes apply (Roth = tax-free if qualified)
- Age 55 Exception: Early access without penalty under certain conditions
10. After-Tax Contributions & Mega Backdoor Roth
After-tax 401K contributions and Mega Backdoor Roth strategies allow high-income earners to save more with potential tax-free growth.
