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401k Account


A 401(k) plan allows employees to tax deductible contributions to their company-sponsored retirement account. Employers can match some or all of the employee contributions. Employee contributions are capped at 19,500 per year for employees under the age of 50, and 26,000 for employees aged 50 and over. Contributions are adjusted periodically to account for inflation. Employer contributions increase the contribution limit to $58,000 or 100% of employee compensation, whichever is lower, for employees under 50. With employer contributions, the contribution limit for employees aged 50 and over is $64,500.

There are two types of 401(k) plans: traditional and roth. Traditional 401(k) plans include tax deductible contributions, but withdrawals from the account are taxed. Contributions to a Roth 401(k) are not tax deductible, but withdrawals from a Roth 401(k) are tax deductible. An employee can open and contribute to both a traditional and roth 401(k) at the same time.