If you work in the US, retirement saving starts with the 401(k) — an employer-based retirement account that stacks tax breaks on top of company matching (free money). Not using it is leaving pay on the table. But Traditional vs Roth, how much you can contribute, and what happens when you change jobs all get confusing. Every figure below is taken directly from IRS pages giving the confirmed 2026 amounts.
And one rule takes effect for the first time this year. The IRS states it plainly: "Beginning in 2026, participants of plans with Roth features offering catch-up contributions must make catch-up contributions on a Roth basis if prior-year wages with the plan sponsor exceeded $150,000 (for 2026)." Higher earners can no longer make catch-up contributions pre-tax.
What is a 401(k)?
A 401(k) is an employer-provided retirement plan. Money is deducted from your paycheck automatically and invested, with tax advantages. Three things make it powerful — tax deferral, employer match, and automatic saving.
- Tax break: save on taxes going in (Traditional) or coming out (Roth).
- Employer match: your company adds a percentage on top of what you contribute (e.g., 3–6% of pay).
- Compounding: it grows tax-deferred over time (see our compound interest calculator).
2026 contribution limits — the IRS figures
| Item | 2026 limit |
|---|---|
| Elective deferral | $24,500 |
| Catch-up, age 50+ | +$8,000 (total $32,500) |
| Higher catch-up, ages 60, 61, 62 or 63 only | +$11,250 |
| You + employer combined (annual additions) | $72,000 $80,000 with catch-up / $83,250 at 60–63 |
| Annual compensation limit | $360,000 |
⚠️ The higher catch-up covers exactly four ages. The IRS wording is "employees aged 60, 61, 62, or 63." At 64 it drops back to $8,000. Those four years are the widest pre-tax window you will ever get.
The $24,500 is what you contribute; the employer match sits on top. But the combined total has its own $72,000 ceiling. With a generous match you can hit that cap before you have even filled your own $24,500.
Traditional vs Roth 401(k)
Same account, but when you pay tax differs.
| Item | Traditional | Roth |
|---|---|---|
| Going in | Tax-deductible (lowers taxable income) | After-tax (no deduction) |
| Coming out | Withdrawals fully taxed | Principal + gains tax-free |
| Better when | Your tax rate is high now | Your rate will be higher later (young/early-career) |
Simplified: it's your tax rate now vs. in retirement. Roth often wins when young and low-income; Traditional when income and rates are high. See US tax brackets.
Employer match: get this at minimum
One rule above all — contribute at least up to the match. If your company matches "100% up to 4% of pay," contributing 4% gets you another 4% free. That's an immediate 100% return; skipping it throws away part of your pay.
Watch vesting. Employer match becomes "yours" only after a service period. The two IRS-described schedules are cliff vesting — 100% at year three — and graded vesting — 0 → 20 → 40 → 60 → 80 → 100% across years one to six. Before changing jobs, check how much of your match is vested. Your own contributions are always 100% yours.
No match percentages are printed in this article. Federal sources say only that "sometimes the employer may match these contributions" — no rates or caps. It varies by plan, so check your own plan document.
Job changes and withdrawals
- Changing jobs: roll your old 401(k) into the new plan or an IRA tax-free.
- Early withdrawal: before 59½, taxes plus a 10% additional tax.
- Normal withdrawal: allowed after 59½. Traditional has required minimum distributions from 73, the first due by April 1 and each subsequent one by December 31.
⭐ The "age 55 rule" exists in a 401(k) and not in an IRA. IRS Topic no. 558 exempts you from the 10% additional tax if you were 55 when you left the job (50, or 25 years of service, for qualified public safety employees). An IRA has no such exception. Retire at 55 and rolling your 401(k) into an IRA destroys this benefit. Weigh it before you roll over.
The same source covers a $5,000 qualified birth or adoption distribution and a reservist exception tied to 180 days of active duty.
Missing an RMD is expensive. The IRS applies a 25% excise tax on the shortfall, reduced to 10% if corrected within two years. If you miss one, fix it rather than leave it.
Example: $80,000 salary, 4% match
Say you earn $80,000 with a 100% match up to 4%. ① Contribute at least 4% ($3,200) to capture the $3,200 match — instantly doubled. ② If you can, raise it toward the $24,500 limit. ③ Traditional to cut taxes now, Roth for tax-free later. ④ Extra capacity goes to an IRA. The order "match first → fill the limit → add IRA" is the classic playbook.
Checklist
- ☐ Know your match rate/cap → contribute at least that much
- ☐ Choose Traditional vs Roth (rate now vs. in retirement)
- ☐ Review your investment allocation (target-date funds, etc.)
- ☐ Check the vesting schedule (especially before leaving)
- ☐ On job change, consider an IRA rollover (don't cash out)
- ☐ No withdrawals before 59½ (10% penalty)
401(k) vs IRA at a glance
| Item | 401(k) | IRA |
|---|---|---|
| How you join | Through an employer | You open it yourself |
| 2026 limit (you) | $24,500 | $7,500 |
| 2026 catch-up (50+) | +$8,000 | +$1,100 |
| Pre-59½ exception | Age 55 rule applies | None |
| Employer match | Yes — the core benefit | No |
| Investment choice | Within the plan's menu | Wide (individual stocks, ETFs) |
| Roth income limit | None on Roth 401(k) | Applies to Roth IRA |
The order that follows is: capture the 401(k) match first, then use the IRA for its wider investment choice.
Questions you may have
Q. What if my employer has no 401(k)?
An IRA is the alternative — an account you open yourself. Self-employed people also have Solo 401(k)s and SEP IRAs.
Q. Is a 401(k) worth it without a match?
Yes — tax deferral and automatic saving still help. But with no match, filling a low-fee IRA first, then the 401(k), is worth considering.
Q. Does a Roth 401(k) have income limits?
A Roth IRA has income limits; a Roth 401(k) does not. But from 2026, prior-year wages above $150,000 force your catch-up into Roth — that part is mandatory, not a choice.
Q. What makes a Roth 401(k) withdrawal tax-free?
In the IRS's words, it must come "at least 5 years after the first contribution to your Roth account; and after you're age 59½ or on account of you being disabled, or to your beneficiary after your death." Both the five years and 59½ must be satisfied.
Q. I'm retiring at 55 — should I roll into an IRA?
Think carefully. The 401(k) has the age 55 exception and an IRA does not. Rolling over can remove your only route around the 10% additional tax until 59½.
Q. How does this compare to Korea's national pension?
Korea's national pension is a public plan; a 401(k) is a private account you manage. They complement each other. See our national pension calculator.
Sources and where to check
- Internal Revenue Service — Retirement topics — 401(k) and profit-sharing plan contribution limits (updated 8 April 2026). Source of $24,500, the $8,000 catch-up, $11,250 at 60–63, annual additions of $72,000 / $80,000 / $83,250 and the $360,000 compensation limit.
- Internal Revenue Service — Retirement topics — Catch-up contributions (updated 7 May 2026). Source of the "beginning in 2026 … $150,000" Roth catch-up rule and the SIMPLE plan catch-ups ($4,000 / $5,250).
- Internal Revenue Service — 401(k) limit increases to $24,500 for 2026 (IR-2025-111). Gives the 2025 comparison ($23,500 / $7,500).
- Internal Revenue Service — Topic no. 558, Additional tax on early distributions. Source of the 10% additional tax, the age 55 exception (50 or 25 years for public safety), the $5,000 birth or adoption distribution and the 180-day reservist rule.
- Internal Revenue Service — Roth account in your retirement plan. Source of the qualified distribution test ("at least 5 years … and after you're age 59½ …").
Written as of July 2026. Contribution limits, catch-ups, annual additions, the compensation limit, the mandatory Roth catch-up, vesting schedules, early-withdrawal exceptions and RMD rules all come from the IRS pages above, with their update dates noted. By contrast, employer match rates and caps are absent from federal sources and are therefore not printed here — Department of Labor material says only that an employer "may match" contributions. Note too that the IRS Roth comparison chart is on a 2024 basis and still shows an RMD age of 72, so it was not used. Limits change every year and outcomes depend on your circumstances — consult a CPA or financial planner. This is general information, not tax or investment advice.
