401(k) — Traditional & Roth
A 401(k) is a common employer-sponsored retirement plan. You usually contribute through payroll, and employers often provide matching contributions. Many plans offer both Traditional (pre-tax) and Roth (after-tax) contribution options.
The core idea (in plain English)
You save for retirement directly from your paycheck. Traditional contributions may reduce taxes today, while Roth contributions trade today’s tax break for potentially tax-free qualified withdrawals later.
How money goes in
- Employee salary deferrals (Traditional and/or Roth, depending on plan).
- Employer match or profit-sharing (plan-specific).
If your employer matches contributions, contributing at least enough to capture the full match is often a top priority because it’s effectively additional compensation.
Access rules
- Plan rules often restrict withdrawals while employed.
- Loans or hardship withdrawals may be allowed (plan-specific).
- Traditional withdrawals are generally taxable; early distributions may be penalized.
Common pitfalls
- Missing the match by not contributing enough.
- Ignoring plan fees or expensive fund options.
- Using loans/hardship withdrawals too often can interrupt compounding.
If your plan offers a match, capturing it is often priority #1. After that, optimize Traditional vs Roth based on your tax situation and timeline.
Educational only. Always confirm eligibility, limits, and plan rules with IRS guidance or plan documents.