How it works
A 401(k) is an employer-sponsored retirement account funded through payroll contributions. The account is a container for investments, not an investment itself. Your plan determines the available funds, fees, employer contributions and distribution options. Traditional employee contributions generally reduce current federal taxable income; withdrawals are generally taxable. Roth contributions, if offered, use after-tax dollars and qualified withdrawals are tax-free.
The decisions that matter
Read the plan summary and identify the employer match formula, vesting schedule and fund expenses. Your own contributions are yours; employer contributions may vest over time. Choose a diversified allocation that fits your time horizon and capacity for losses. A target-date fund can combine investments and adjust its allocation over time, but still carries market risk. Compare its fees and holdings before choosing.
A paycheck example
If a hypothetical employer matches 50% of contributions up to 6% of a $60,000 salary, contributing $3,600 for the year could earn a $1,800 match. That is $5,400 contributed before investment changes. Actual match timing, eligible pay and true-up provisions depend on your plan. Confirm those details before front-loading contributions.
Common mistakes
Enrolling without selecting investments can leave you in a default option that may not fit your goals. Cashing out after a job change can create taxes and an additional early-distribution tax unless an exception applies. Loans and withdrawals can interrupt retirement growth. Before rolling over, compare fees, investment choices, services and creditor protections across the old plan, new plan and an IRA.
Your next steps
Find the plan summary. Record your contribution percentage, match and vesting date. Review investment expenses and beneficiary designations. Choose a sustainable contribution and consider gradual increases when pay rises. Check the IRS for the current annual limit and catch-up eligibility; payroll contributions across employers may need to be coordinated.
Your action checklist
Choose one step to complete this week.
Go to the source
Check these official resources for current rules and details.