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Your 401(k) Plan Guide

These employer-sponsored savings vehicles may not be ideal, but they can still help millions of Americans secure their retirements.

Employer-sponsored 401(k) plans are the retirement savings vehicle of choice for millions of Americans. They allow us to squirrel away pretax dollars for our golden years--and we do so automatically, without even thinking about it. In some cases, our employers contribute to our 401(k) kitties, too, via a company match. What could be better?

As it turns out, a lot could be better. To its credit, the industry has addressed some of the challenges that’ve dogged 401(k) plans--namely, lack of participation and overwhelming investment choice.

“Automatic-enrollment programs, default investments, and auto-escalation features have improved the early versions of plans,” observes Morningstar’s John Rekenthaler.

But many agree that the 401(k) system, in its current form, has significant limitations.

“Small businesses often do not offer 401(k) plans, and companies of all sizes struggle with account leakage--assets that employees withdraw before they retire,” says Rekenthaler.

Plenty of respected voices (including Morningstar’s Rekenthaler and director of policy research Aron Szapiro) have bold ideas for improving the existing system or changing it outright.

In this special report, we address how to make the most of 401(k) plans today. We offer tips for how to invest in your plan and what to do if your plan is sub-optimal. We discuss what alternatives you have for retirement saving if you don’t have access to a 401(k) plan. And we share some ideas for how to reform the retirement savings system over time, too.

100 Must-Know Statistics About 401(k) Plans The costs of participating in company retirement plans have come way down, but investors in small plans pay far more than large-plan investors. What Should I Do If I Don't Have a 401(k)? Evaluating the best options for tax-efficient--and automatic--savings outside of a company retirement plan. A Checklist for Lobbying for a Better 401(k) Follow these steps to benchmark how and where your plans fall short.

Five (Easy) Steps to Setting Up a 401(k) Cross this big to-do off your list by following these easy guidelines.

FAQs on 401(k)s The skinny on Roth versus traditional contributions, early withdrawals, loans, and more.

What Does It Take to Have a $1 Million 401(k)? Saving a considerable amount for retirement might not be as hard as you think.

5 Questions to Ask When Taking a Hands-On Approach to Your 401(k) Selecting your own investments? Here's what to know before you start.

Is It Ever a Good Idea to Hold Company Stock in a 401(k)? Even if you earn your match in company shares, it doesn't mean you have to stick around.

Private Equity in 401(k) Plans: More Smoke Than Fire The reality is tamer than the headlines suggest.

401(k)s Have Reached Their Expiration Date The plans are as good as they can be under the current framework--and that's not good enough.

The New American Retirement Plan The time is right, even if the politicians aren't yet ready.

Replacing 401(k) Plans: Further Thoughts Ensuring that the plane can stay aloft.

With 401(k) Plans, What You Don't Know Can Hurt You The silent damage caused by revenue-sharing agreements.

Reforming the U.S. 401(k) System Morningstar’s director of policy research offers some reflections on the state of affairs.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies .

More on this Topic

Target-Date Funds and Annuities ... It’s Complicated A new wave of target-date strategies with annuities is here. Samantha Lamas

What Higher Interest Rates Mean for Retirement Cash Flows Now that interest rates are higher, should retirees try to live off of their portfolios’ yields? Christine Benz

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What is a 401k and how does it work, a 401(k) can be the key to reaching your retirement goals..

A 401(k) plan is an employer-sponsored retirement account that allows you to invest a portion of your income in stocks, bonds and other securities. Roughly 70 million Americans contribute to one according to a September 2023 report from the Investment Company Institute, totaling nearly $7 trillion in assets.

Contributing to a 401(k) is a great way to prepare for retirement: Because the money is automatically withdrawn from your paycheck, you won't be tempted to spend it before you retire. It's also tax-deferred, so there's more to invest now and, when you retire, you won't be bumped into a higher tax bracket.

In many cases, employers match some or all of their employees' contributions. However, the IRS sets limits on how much can be put into a 401(k) each year.

Below, CNBC Select explains what you need to know about 401(k) plans, including the different types, when you can start making withdrawals and more.

What we'll cover

How does a 401(k) work.

• What is employee matching?

Types of 401(k) plans

How much can i contribute to my 401(k).

• How much should I contribute to my 401(k)?

When can I withdraw from my 401(k)?

Required minimum distributions, what happens to my 401(k) if i leave my job, 401(k) vs. ira, bottom line, compare investing products.

A traditional 401(k) plan is offered through an employer, with contributions taken directly from an employee's paycheck before any taxes are applied and invested in stocks, bonds and other asset classes.

You might need to sign up for your 401(k) plan, though a growing number of companies automatically enroll new employees. This encourages participation but it also means you have to specifically opt out if you don't want to contribute.

Contact your HR department to find out if your company offers a 401(k) plan, what kind and whether enrollment is automatic or not. Once your account has been created, review your asset allocation and make sure it aligns with your goals.

What is employer matching?

Most employers that offer 401(k) plans match their employees' contributions up to a certain amount. For example, you might put 10% of your paycheck in a 401(k), but your company may only match the first 6% of that contribution.

It may be a full dollar-to-dollar match or a partial match —  50 cents for every dollar you contribute, for example. It can also be a combination of the two, say, a full match up to 3% and then a 50% match for the next 2%.

Depending on your employer and plan, those matching contributions might not be 100% vested right away. In retirement planning, vesting refers to how much of the funds you own outright. Your contributions are always vested immediately but, depending on when your employer's matching funds vest, you might forfeit a percentage of them if you leave the plan or the company.

Full vesting can happen gradually, when it's known as "graded vesting," or all at once after a certain number of years, when it's called "cliff vesting. In 2022, close to 16% of employers required workers to wait six years before their matches vested 100%, according to the Plan Sponsor Council of America .

Some companies will offer non-matching contributions, which are made regardless of whether you contribute anything or not. 

While all 401(k) plans are employer-sponsored, there are several different kinds .

Traditional 401(k)

With a basic 401(k) plan, employees contribute a portion of their pre-tax wages into a retirement account. Their employer may match their contribution, either fully or partially, or make non-matching contributions. The taxes on contributions and any earnings are taken when withdrawals are made.

Roth 401(k)

Unlike a traditional 401(k), money is taxed before it's put into a Roth 401(k) . While that means there's less to invest, you'll be able to withdraw it tax-free. That can be especially beneficial if you expect to be in a higher tax bracket when you retire. In addition, Roth 401(k) plans are not subject to required minimum distributions .

Safe harbor 401(k)

Employer contributions are required in safe harbor plans, whether or not the employee contributes . In addition, these plans are exempt from non-discrimination tests that ensure traditional 401(k) plans benefit all employees regardless of how much they earn. Employees with safe harbor plans are fully vested right away.

Simple 401(k)

A SIMPLE 401(k) is designed for businesses with 100 or fewer employees who receive at least $5,000 in compensation. Like safe harbor plans, they are exempt from nondiscrimination testing and employers must contribute even if a worker opts out.

The main difference from other plans is that no other employer-sponsored retirement options can be offered if workers are covered by a SIMPLE 401(k).

Solo 401(k)

If you are self-employed or run a small business with a spouse, you may be eligible for a solo 401(k) plan , also known as a one-participant plan. This allows you to enjoy the benefits of a retirement account without having an outside employer.

The IRS sets dollar limits on 401(k) contributions each year, which vary depending on the type of plan you have. In addition, workers 50 and older can make additional contributions , which also have annual caps.

For 2024, the limit for individual contributions to a traditional 401(k) is $23,000, while the cap on combined employee and employer contributions is $69,000. (If you're over 50, you can invest an additional $7,500 in in 2024.) Overcontributing to your plan is possible, though rare — payroll departments and investment firms are on the lookout for it . If you do go over the limit, you'll have to withdraw the excess and pay taxes on it before Tax Day, according to the IRS .

If you fail to withdraw it by Tax Day, the overage will still be considered taxable income that year. And it will be taxed a second time when you finally make qualified distributions.

How much should I contribute to my 401k?

Experts recommend contributing at least as much to your 401(k) as your company is willing to match. If your employer match is 4% of your income, for example, you should contribute at least 4%.

Beyond that, you can work up to investing 15% of your income in your retirement account  (including any employer contribution), but it depends on your financial situation, age and retirement goals. The average 401(k) balance at the end of 2023 was $118,600, according to Fidelity Investments , the largest provider of 401(k) plans in the U.S.

Similar to other retirement plans, such as the 403(b) and the Thrift Savings Plan , the IRS allows qualified distributions (penalty-free withdrawals) from 401(k) plans starting at age 59½.

If you make a withdrawal from a traditional 401(k) before then, you'll pay federal and state tax and a 10% penalty on it. (The IRS makes some exceptions for specific hardships, provided your specific plan allows it.)  If you make an early withdrawal on a Roth 401(k), you'll only pay the tax and penalty on any earnings.

Depending on your company, you may also be able to borrow money from your 401(k) without facing a penalty: A 401(k) loan can be for as much as 50% of your retirement savings, up to a maximum of $50,000.

Most seniors are required to start making annual withdrawals from their 401(k) plans starting at age 73. The amount of your required minimum distribution (RMD) depends on your age, marital status and how much you have in your retirement accounts.

Starting in 2024, Roth 401(k) accounts are no longer subject to RMDs.

If you leave a job where you were contributing to a 401(k), you have a few options . If the account has less than $7,000, your employer also has the right to cash out your account or roll it into an IRA.

Keep your old 401(k). If you're satisfied with your plan's investment options, leaving your money where it is an easy solution. You can also set up a separate 401(k) with your new employer.

Roll the balance into your new job's 401(k). If your new employer provides a 401(k) plan, you can typically move the funds from your old account into the new one without any penalty. This allows you to consolidate your funds and keep contributing more money.

Roll the balance into an IRA. This can give you a wider range of investing options and it's easier to make penalty-free early withdrawals if there is an emergency.

Cash out the balance. Your employer may allow you to liquidate your 401(k), but you will have to pay a 10% penalty, as well as applicable federal and state taxes. In addition, those funds can no longer be invested in a 401(k) plan and the money you take may bump you into a higher tax bracket.

If you've taken out a 401 (k) loan and left your job before you've fully paid it back, you may have to finish repaying quickly . If you default on a 401(k) loan, you'll owe both taxes and the 10% penalty.

401(k) plans and Individual Retirement Accounts (IRAs) are the two most common financial products for retirement planning, according to the U.S. Census Bureau. Many people have both , which can help diversify your portfolio and protect you from market fluctuations.

Both IRAs and 401(k) plans are typically tax-deferred but a 401(k) is offered through an employer, while you commonly open and fund an IRA yourself with the help of a bank or broker. The contribution cap on a 401(k) plan is much higher and you may even be able to borrow money from the account. But once you leave the employer who sponsored your plan, you can't contribute anymore.

In addition, investors usually have more investment options with an IRA. Fidelity is a good choice for beginners, with no account minimums or commissions on stock or ETF trades and many zero-fee index funds. New investors can also dip their toe in the pool with fractional shares available for as little as $1.

Fidelity Investments

Minimum deposit and balance.

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Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.

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How quickly does a 401(k) grow?

The rate at which your 401(k) grows depends on several factors, including the securities you've selected. In 2022, the average return on a 401(k) was between 5% and 8%, according to Time magazine.

What's the average employer match?

The average 401(k) employer match in 2022 was 4.5% according to the latest data from Vanguard . Among plans with a nonmatching employer contribution, the average was 5.1%.

Can you have both a 401(k) and an IRA?

Not only is this allowed, it's encouraged because it diversifies your portfolio and offers more long-term security.

At what age can you withdraw from a 401k?

You can begin withdrawing from your 401(k) penalty-free when you turn 59½.

Can I cash out my 401k?

Yes, but If you liquidate your 401(k) before age 59½ you'll pay a 10% penalty, as well as federal and state taxes.

What happens to my 401k if I leave my job?

Typically you can keep the account with your old company's plan, roll it over into your new job's plan or roll it into an IRA. You can also cash it out, but there are financial penalties.

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Contributing to a 401(k) is one of the best ways to prepare for retirement. There are differences among plans, however, including particular tax advantages and employer contributions, so it's important to find out what type your company may offer.

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What Is a 401(k) Plan?

• Roth 401(k)
• Contribution Limits
• Investment Options
• Withdrawal Rules

401(k) Plan Loans

Hardship distributions, 401(k) strategies.

• 401(k) FAQs

The Bottom Line

• Retirement Planning

The Rules of a 401(k) Retirement Plan

How these nest-egg mainstays work, from first deposit to withdrawal

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Since its inception in 1978, the 401(k) plan has grown to become the most popular type of employer-sponsored retirement plan in America. Millions of workers depend on the money they invest in these plans to provide for them in their retirement years, and many employers see a 401(k) plan as a key benefit of the job. Few other plans can match the relative flexibility of the 401(k).

Key Takeaways

• A 401(k) is a qualified retirement plan, which means it is eligible for special tax benefits.
• You can invest a portion of your salary, up to an annual limit.
• Your employer may or may not match some part of your contribution.
• The money will be invested for your retirement, usually in your choice of a variety of mutual funds.
• You can't usually withdraw any of the money without a tax penalty until you're 59½.

A 401(k) plan is a retirement savings account that allows an employee to divert a portion of their salary into long-term investments. The employer may match the employee's contribution up to a limit.

A 401(k) is technically a qualified retirement plan, meaning it is eligible for special tax benefits under Internal Revenue Service (IRS) guidelines. Qualified plans come in two versions. They may be either defined contributions or defined benefits , such as a pension plan. The 401(k) plan is a defined contribution plan.

That means the available balance in the account is determined by the contributions made to the plan and the performance of the investments. The employee must make contributions to it. The employer may choose to match some portion of that contribution or not. The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws that money. This typically happens  after retirement when the account balance is entirely in the hands of the employee.

The Roth 401(k) Variation

While not all employers offer it, the Roth 401(k) is an increasingly popular option. This version of a 401(k) plan requires the employee to immediately pay income tax on the contributions. However, after retirement, the money can be withdrawn with no further taxes due on either the contributions or investment earnings.

Employer contributions can only go into a traditional 401(k) account—not a Roth.

401(k) Contribution Limits

The maximum amount of salary that an employee can defer to a 401(k) plan, whether traditional or Roth, is $23,000 for 2024 and $22,500 for 2023. Employees aged 50 and older can make additional catch-up contributions of up to $7,500 for either year.

The IRS also limits the maximum joint contribution by both employer and employee. In 2023, the maximum joint contribution by both parties is $66,000 (or $73,500 for those making a catch-up contribution). In 2024, this limit is $69,000.

Contributions to a traditional 401(k) are made with pre-tax dollars and reduce the employee's taxable income, as well as their adjusted gross income (AGI) . Taxes are deferred until the funds are withdrawn.

The maximum joint contribution between employee and employer can not exceed the employee's total annual compensation.

Limits for High Earners

For most people, the contribution limits on 401(k)s are high enough to allow for adequate levels of income deferral. In 2023, highly paid employees can only use the first $330,000 of income when computing maximum potential contributions. This limit increases to $345,000 in 2024.

401(k) Investment Options

A company that offers a 401(k) plan typically offers employees a choice of several investment options . The options are usually managed by a financial services advisory group such as The Vanguard Group or Fidelity Investments.

The employee can choose one or several funds to invest in. Most of the options are mutual funds , and they may include index funds , large-cap and small-cap funds, foreign funds, real estate funds, and bond funds. They usually range from aggressive growth funds to conservative income funds.

Rules for Withdrawing Money

The distribution rules for 401(k) plans differ from those that apply to individual retirement accounts (IRAs) . In either case, an early withdrawal of assets from either type of plan will mean income taxes are due, and, with few exceptions, a 10% tax penalty will be levied on those younger than 59½.

But while an IRA withdrawal doesn't require a rationale, a triggering event must be satisfied to receive a payout from a 401(k) plan. The following are the usual triggering events:

• The employee retires from or leaves the job.
• The employee dies or is disabled.
• The employee reaches age 59½.
• The employee experiences a specific hardship as defined under the plan.
• The plan is terminated.

Money withdrawn from a 401(k) is usually taxed as ordinary income .

Post-Retirement Rules

Account owners who turn 73 on or after Jan. 1, 2023, must begin taking required minimum distributions (RMDs) at age 73, unless they still work for the sponsoring employer and have a plan that allows them to defer RMDs.

Before 2023, the age for RMDs was 72, after being raised from 70½ in 2019 when Congress passed the Setting Every Community Up For Retirement Enhancement (SECURE) Act .

This differs from other types of retirement accounts. Even if you're employed, you have to take the RMD from a traditional, SEP, or SIMPLE IRA, for example.

The Rollover Option

Many retirees transfer the balance of their 401(k) plans to a traditional IRA or a Roth IRA . This rollover allows them to avoid the limited investment choices that are often present in 401(k) accounts.

If you decide to do a rollover , make sure you do it right. In a direct rollover , the money goes straight from the old account to the new account , and there are no tax implications. In an indirect rollover, the money is sent to you first, and you will owe the full income taxes on the balance in that tax year.

If your 401(k) plan has employer stock in it, you are eligible to take advantage of the net unrealized appreciation (NUA) rule and receive capital gains treatment on the earnings. That will lower your tax bill significantly.

To avoid penalties and taxes, a rollover must take place within 60 days of withdrawing funds from the original account.

If your employer permits it, you may be able to take a loan from your 401(k) plan . If this option is allowed, up to 50% of the vested balance can be borrowed up to a limit of $50,000. The borrower must repay the loan within five years. A longer repayment period is allowed for a primary home purchase.

In most cases, the interest paid will be less than the cost of paying real interest on a  bank  or consumer loan—and you will be paying it to yourself. But be aware that any unpaid balance will be considered a distribution and taxed and penalized accordingly. In addition, should you leave your employer, you will be required to pay any pending 401(k) loan balance in full or face IRS tax or penalties.

There may come a time when emergencies arise. And you may find that the only place you can turn to meet your immediate financial needs is your retirement plan. While it may not necessarily be the best route, you have the option to take hardship distributions or withdrawals . There are a number of considerations when it comes to this kind of withdrawal:

• There must be a clear and present need to take a hardship distribution . It can also be a voluntary or foreseeable need as long as it is reasonable.
• The amount of the withdrawal must not exceed the need.
• You can't take any elective distributions for six months after the hardship withdrawal.

This type of withdrawal is taxable. And if you take one of these, you aren't expected to pay it back to the account. Full details on hardship distributions are available through the IRS website .

Every individual has a unique financial situation, and no single retirement strategy is universally best for everyone. Still, there are some broad tips or guidance that benefit most investors, especially those looking to make the most of their retirement savings .

Maximize Employer Match

One of the golden rules of retirement savings is to always try to prioritize taking the full amount of your employer match. For example, if your employer matches dollar for dollar your first 4% of 401(k) contributions, you should strive to put at least 4% into your 401(k). This strategy maximizes the free money you receive from your employer.

Be Mindful of Contribution Limits

The IRS does not permit contributions in excess of 401(k) annual limits. Should you overcontribute, you are required to then withdraw those excess contributions, triggering potential taxes and penalties. In 2023, the 401(k) contribution limit for both traditional and Roth 401(k)s was $22,500, and the contribution limit in 2024 is $23,000. There are also catch-up contributions of $7,500 for individuals 50 years or older.

Consider Roth and Traditional 401(k) Benefits

In general, it is better to contribute to Roth financial vehicles when your tax bracket is currently low and you expect to be in a higher tax bracket in the future. On the other hand, it is usually better to contribute to a traditional financial vehicle when your tax bracket is currently high. This allows you to take advantage of immediate tax benefits.

Try Not to Withdraw Early

Should you withdraw retirement plan funds early, you will be subject to Federal income tax on the withdrawal. In addition, the IRS will impose a 10% penalty on early withdrawals. Finally, withdrawing retirement savings early may stem the compounding effect your investments may experience. Leaving your 401(k) plan as-is for longer maximizes your potential for long-term portfolio growth.

How Do I Start a 401(k)?

A 401(k) plan is only offered through an employer, which means you can't start investing in one on your own. If your employer does offer this type of retirement plan, you must sign up and figure out how much you wish to contribute. This is the amount that will be deducted from each paycheck.

Be sure that this amount doesn't put you over the contribution limit set by the IRS. Your employer may also offer investment options , such as mutual funds, from which to choose. Your contributions will be divided between these funds as per your allocation instructions.

What Benefits Does a Traditional 401(k) Plan Offer?

There are a number of benefits that traditional 401(k) plans offer investors. Making payroll contributions means it's a no-fuss, no-muss process. These plans allow you to contribute pre-tax dollars for retirement, which lowers your taxable income and, therefore, your tax liability.

If your employer provides a contribution match, it sweetens the pot. That's because it's like free money going into your retirement pocket. If you start investing earlier, your savings compound. This means that any interest your earn also earns interest. And even if you change employers/jobs, you can take it with you.

What's the Difference Between a Traditional 401(k) and a Roth 401(k)?

While traditional 401(k) plans allow you to make pre-tax contributions, the Roth version involves after-tax contributions. The tax benefit, though, occurs when you make withdrawals from your account. When you take required minimum distributions from a Roth 401(k), that money is tax-free. Withdrawals from traditional accounts, though, are taxed at your normal tax rate. That's because the contributions are made on a tax-free basis.

Saving for retirement should be on everyone's radar, especially if you want to maintain the same lifestyle you currently have. But with so many options, where do you start? The best place is the 401(k) plan, which is offered by employers. If your company has this plan, take advantage of it. This is even more important if your employer matches contributions. But it isn't just about socking away the money that counts. Knowing the ins and outs and the rules associated with the plan can make you a better investor.

Internal Revenue Service. " H.R.13511 - Revenue Act ."

Internal Revenue Service. " 401(k) Plan Overview ."

Internal Revenue Service. " 401(k) Limit Increases to $23,000 for 2023, IRA Limit Rises to $7,000. "

Internal Revenue Service. " 401(k) Resource Guide - Plan Participants - General Distribution Rules ."

U.S. Department of Labor. " Types of Retirement Plans ."

Internal Revenue Service. " Retirement Plans FAQs on Designated Roth Accounts ."

Internal Revenue Services. " 2024 Limitations Adjusted ."

Internal Revenue Service. " 401(k) Plans - Deferrals and Matching When Compensation Exceeds the Annual limit ."

Internal Revenue Service. " Publication 590-B (2021), Distributions From Individual Retirement Arrangements (IRAs) ."

Internal Revenue Service. " Retirement Topics - Exceptions to Tax on Early Distributions ."

Internal Revenue Service. " Hardships, Early Withdrawals and Loans ."

Internal Revenue Service. " Retirement Plan and IRA Required Minimum Distributions FAQs ."

Internal Revenue Service. " RMD Comparison Chart (IRAs vs. Defined Contribution Plans) ."

Internal Revenue Service. " Rollover Chart ."

Internal Revenue Service. " Rollovers of Retirement Plan and IRA Distributions ."

Financial Industry Regulatory Authority (FINRA). " 401(k) Rollovers ."

Internal Revenue Services. " Publication 575 (2021), Pension and Annuity Income ."

Internal Revenue Service. " Retirement Topics - Plan Loans ."

Internal Revenue Service. " Retirement Topics - Hardship Distributions ."

Internal Revenue Services. " Traditional and Roth IRAs ."

• What Is a 401(k) and How Does It Work? 1 of 20
• Beginner’s Guide to the Types of 401(k)s 2 of 20
• The Rules of a 401(k) Retirement Plan 3 of 20
• Is a 401(k) Worth It? 4 of 20
• Are 401(k)s FDIC-Insured? 5 of 20
• 401(k) Age Limits: Can You Be Too Young for One? 6 of 20
• How Much Should I Contribute to My 401(k)? 7 of 20
• 401(k) Contribution Limits for 2023 vs. 2024 8 of 20
• How 401(k) Matching Works 9 of 20
• What Is a Good 401(k) Match? How It Works and What's the Average 10 of 20
• Vesting: What It Is and How It Works in Retirement and Benefits 11 of 20
• My Employer Doesn't Offer a 401(k). Should I Care? 12 of 20
• What Happens to Your 401(k) When You Leave a Job? 13 of 20
• Why Might Your 401(k) Be Unavailable After You Leave a Job? 14 of 20
• How to Transfer a 401(k) to a New Employer 15 of 20
• 401(k) and IRA Contributions: You Can Do Both 16 of 20
• Top 7 Reasons to Roll Over Your 401(k) to an IRA 17 of 20
• Are 401(k) Contributions Tax Deductible? 18 of 20
• Can My 401(K) Be Seized or Garnished? 19 of 20
• What Your 401(k) Could Look Like in the Next 20 Years 20 of 20

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Nearly 2 in 3 Americans Worry More About Running Out of Money Than Death

Source: Allianzlife.com, April 2024

401k Balances Rise 14% in 2023, but Participation Rate Falls

Source: 401kspecialistmag.com, April 2024

Americans Believe They Will Need $1.46 Million to Retire Comfortably According: Study

Source: Prnewswire.com, April 2024

Majority of Plan Sponsors Concerned Future Retirees Will Run Out of Money in Retirement

Source: Metlife.com, March 2024

ESG in 401k Plans in the Wake of Spence v. American Airlines, Inc.

Source: Ktslaw.com, March 2024

Action Steps an Employer Can Take to Support Gen Z in Saving

Source: Ntsa-net.org, March 2024

Small Business Retirement Plans: How Firms Perceive Benefits and Costs

Source: Bc.edu, March 2024

Help Employees Guard Retirement Savings Against Market Volatility

Source: Usicg.com, March 2024

Core Menus Need to Evolve

Source: Planadviser.com, March 2024

How Men and Women Invest Differently, and What We Can Learn From Each Other

Source: Arnerichmassena.com, March 2024

Millennials Redefine Retirement as "Financial Independence"

An easy read on the past and future of 401k plan litigation.

Source: Bostonerisalaw.com, March 2024

Redefining 401k Data Collection for Racial and Gender Groups

Source: 401kspecialistmag.com, March 2024

401k World: The Litigators

Americans want retirement investment advice to be in their best interest: survey.

Source: Prnewswire.com, March 2024

Beware of the Dark Side of the 401k Business

Source: Jdsupra.com, March 2024

Demand for Increased Personalization Could Come from Younger 401k Participants

Source: Cerulli.com, March 2024

Retirement Savers Ended 2023 on a Positive Note

Younger 401k participants seek personalization features, saving for retirement can mean adding some debt too, a return to retirement income plans.

Source: Segalco.com, March 2024

401k World: DCIO Managers Adjust to Fee Pressures

"exploding market" for 401ks may help shrink coverage gap, the 2024 game plan for in-plan annuities.

Source: Qualifiedplanadvisors.com, February 2024

More Than Half of U.S. Workers Are Unaware of the IRS Tax Credit for Eligible Retirement Savers

Source: Prnewswire.com, February 2024

The National Retirement Risk Index: An Update From the 2022 SCF

Source: Bc.edu, February 2024

Three Themes Shaping the U.S. Retirement Landscape

Source: Troweprice.com, February 2024

Four Phases of Retirement. The Third One Is Not Much Fun

Nearly three quarters of higher ed institutions list retirement readiness as top concern.

Source: 401kspecialistmag.com, February 2024

Driving Better Insights and Outcomes -- Securely -- With Artificial Intelligence

Source: Napa-net.org, February 2024

401k Managed Account Users Out-Saving TDF Participants

Employees see 401k plans as prerequisite instead of perk, advisors and participants don't agree on retirement readiness, how sponsors can get the most out of dc plan design changes.

Source: Plansponsor.com, February 2024

Student Loan Payments Negatively Impact 401k Contribution Rates, Account Balances

Climate-friendly initiative aims to retire big oil in 401ks, almost half of employees stressed about retirement savings, secure 2.0's auto enrollment, savers match will bring most positive impact.

Source: Planadviser.com, February 2024

Advisers Hardly Ever Recommend Active TDFs to Retirement Plans, Research Shows

The pros and cons of remaining in a 401k plan after retirement.

Source: Openjournals.libs.uga.edu, February 2024

45% of U.S. DC Plan Sponsors Considering Adding Emergency Savings Options in 2024: Survey

Source: Benefitscanada.com, January 2024

New Brief Argues for Reallocating 401k Tax Expenditures to Social Security

Source: 401kspecialistmag.com, January 2024

Auto-IRAs and More: New Retirement Planning Options Target Underserved Employees

Source: Corporateinsight.com, January 2024

The Case for Using Subsidies for Retirement Plans to Fix Social Security

Tax preferences for saving in retirement plans are expensive, about $185 billion in 2020, according to Treasury estimates. Strikingly, they also seem a bad deal for taxpayers, primarily benefiting high earners while failing to significantly boost national savings. Thus, the case is strong for eliminating or reducing these preferences. The resulting increase in tax revenues could be reallocated to fixing Social Security's finances.

Source: Bc.edu, January 2024

Infographics: Workers Prefer Financial Benefits to Lifestyle Perks

Retirement plan advisers and their plan sponsor clients often work hard to create great benefit plans for employees. But is that work truly appreciated? According to findings from Morgan Stanley's most recent Investor Pulse Survey, the answer is often "yes." In a survey of over 900 people, Morgan Stanley found that most employees will pick a financial workplace benefit over a lifestyle perk such as first-class seats for a business trip or box seats to a game or show.

Source: Planadviser.com, January 2024

New Report Examines Demographic Influences on Retirement Readiness Among Americans

Fewer than one in four Americans (24%) strongly agree they are currently building or have built a large enough retirement nest egg. However, this sentiment varies dramatically across demographic segments, according to "A Compendium of Demographic Influences on Retirement Security," a comprehensive survey report released today by the nonprofit Transamerica Center for Retirement Studies in collaboration with Transamerica Institute.

Source: Prnewswire.com, December 2023

Envestnet Expects Financial Advisers to Expand Further Into 401k Plan Business

Financial advisers, not just retirement specialists, are expected to pursue the 401k plan business at greater rates in 2024 and beyond, while demand for end-to-end technology solutions and personalized services will continue to grow, according to research from Envestnet Inc.

Source: Planadviser.com, December 2023

The 401k "Check Engine Lights" for Plan Sponsors

Unfortunately, as a 401k plan sponsor, you don't have a plan check engine light or tire pressure light. But there are warnings "lights" that your 401k plan may have issues. To check these, you have to be proactive and look under the hood of your 401k plan. This article is all about the warning lights you need to check.

Source: Jdsupra.com, December 2023

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Plan Design and 401(k) Savings Outcomes

We assess the impact of 401(k) plan design on four different 401(k) savings outcomes: participation in the 401(k) plan, the distribution of employee contribution rates, asset allocation, and cash distributions. We show that plan design can have an important effect on all of these savings outcomes. This suggests an important role for both employers in determining how to structure their 401(k) plans and government regulators in creating institutions that encourage or discourage particular aspects of 401(k) plan design.

• Acknowledgements and Disclosures

MARC RIS BibTeΧ

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Non-Technical Summaries

• Increasing Retirement Account Participation Author(s): James J. Choi David Laibson Brigitte C. Madrian If the goal is to get more employees to open 401(k) plans, then employees should not be required to actively initiate participation....

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In addition to working papers , the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter , the NBER Digest , the Bulletin on Retirement and Disability , the Bulletin on Health , and the Bulletin on Entrepreneurship  — as well as online conference reports , video lectures , and interviews .

Welcome to Research401k.com – A Complete Resource On Important 401k Retirement Plan Topics such as Rollovers, Roth IRA Accounts , Contribution Limits, Hardship Withdrawals, Self-Employed 401k and more!

Latest 401k news (january 22th, 2020) – irs announces max 401k contribution limits for 2020.

Uniform Lifetime Table to Calculate 401k Minimum Required Distributions (MRDs)

Tax Increase Prevention & Reconciliation Act of 2005 and 401k Retirement Plans

Advantages of Making Salary Deferral 401k Contributions

Roth IRA Rules – Roth IRA Retirement Planning

401k and IRA Rollovers – Direct IRA Rollover Rules – 20% IRA Withholding Law

Roth IRA Contribution Limits for 2016, 2017, 2018, 2019, 2020 etc

Comparisons between Roth IRA, Roth 401k and Old Traditional 401k Retirement Plans

Frequently Asked Roth 401k Questions

Roth 401k – A Look at the Final Roth 401k Rules

Differences between 401k Pre-Tax Contributions & After-Tax Contributions

Effects of the Pension Protection Act of 2006 on Lump Sum 401k Distributions

401k Minimum Required Distributions (MRDs)

Become a Millionaire with your 401k Retirement Plan

Joint Life Expectancy Table to Calculate Minimum Required 401k Distributions (MRDs)

Withdrawing Penalty Free Distributions from your IRA (Individual Retirement Account)

Benefits of Having a Spouse for Individual Retirement Accounts (IRAs)

IRA (Individual Retirement Account) Rollover v/s IRA Transfers – IRA Rollover Rules

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401(k) plan

From pretax contributions and a generous company match to Roth and after-tax options, the Lam 401(k) Plan can help you build the retirement savings you need to meet your goals.

Maximize your savings Learn how to get the most from your money through the Lam 401(k) and other plans. GET THE GUIDE

What you need to know

• Lam will make a true-up contribution after the year ends if there is a difference between the company match you should have received, based on your total contribution for the year, and the total matching contributions you actually received. This process ensures that you receive the full company match.
• The bonus contribution percentage is calculated based on the gross amount of your bonus; however, Roth and after-tax contributions are deducted from your check after the bonus tax rate—which is higher than your regular tax rate—is applied. If your contribution election exceeds available pay, no deduction will be taken.
• For example, in California, the bonus tax rate is approximately 45%, so your maximum Roth or after-tax bonus contribution to your 401(k) cannot exceed approximately 55%. You may want to look at how your last bonus payment was taxed to estimate how much tax you can expect on future bonus payments.
• You choose how to invest your 401(k) balance. You have the flexibility to diversify your portfolio and select from investment options that range from more conservative to more aggressive, depending on your savings goals and risk tolerance.
• You can take your 401(k) with you. It’s portable. If you leave Lam Research, you can take your account balance with you.
• You can consolidate old 401(k) accounts. You can roll over any eligible savings from a previous employer into this plan to make managing your retirement savings a lot easier.
• You can make “catch-up” contributions. If you make the maximum contribution to your 401(k) and are age 50 or older during 2024, you can make additional “catch-up” contributions of up to $7,500 through payroll deductions. You must make a separate election for your catch-up contributions. 
• Fidelity Investments administers the Lam Research 401(k) Plan. You can stop or change your contributions or change beneficiaries at any time by contacting Fidelity through  netbenefits.com  or by calling 800-835-5095. 

Back to top

Understanding your options

The Lam Research 401(k) Plan offers you three ways to build your savings, allowing you to choose when and how to pay taxes on your contributions and earnings, depending on your individual financial needs.

1. Pretax contributions

Your contributions come out of your pay before taxes, so you have more take-home pay than you would if you saved the same amount on an after-tax basis. However, all pretax contributions and earnings are subject to income tax when you make a withdrawal in the future.

• This may be a good option if you expect to be in a lower tax bracket after you retire, or if you want to pay lower taxes now by reducing your current taxable income.
• Maximum annual contribution (combined with Roth contributions): For 2024, $23,000 if under age 50 or $30,500 for age 50 and over. 

2. Roth contributions

Your contributions come out of your pay on an after-tax basis. You’ll have a little less in your paycheck than you would if you contributed the same amount on a pretax basis. Roth contributions offer the potential for tax-free income at retirement. You won’t pay taxes on the value of your contributions or any investment earnings, as long as it has been five years since your first Roth contribution and you are at least age 59½ or disabled.

• This may be a good option if you expect to be in a higher tax bracket in retirement, or if you are young and have more time to accumulate tax-free earnings.
• Maximum annual contribution (combined with pretax contributions): For 2024, $23,000 if under age 50 or $30,500 for age 50 and over.

3. After-tax contributions

Like with Roth contributions, you pay taxes up front at your current tax rate. But with after-tax contributions, when you withdraw money at retirement, you pay taxes on the value of any investment earnings on your contributions.

• This may be a good option if you’re already contributing the pretax/Roth maximum and want to have after-tax income you can count on in retirement.
• Maximum annual contribution: $30,000.
• To build more tax-free retirement income, you can convert your after-tax contributions to Roth through a Roth In-Plan Conversion.

Contribution limits

The IRS sets limits on how much you can contribute to your 401(k) each year.

Electing a large Roth or after-tax contribution? Note that your contribution percentage is based on your gross pay , but the Roth and after-tax contributions are deducted from your net pay after taxes . If your contribution election exceeds available net pay, no deduction will be taken. 

Investment options

Choose your funds.  Fidelity provides a number of investment funds so you can build a portfolio that meets your needs. If you’re not sure where to begin, consider the target-date funds. With a target-date fund, you select a fund named for a year close to when you expect to retire, and that fund’s mix of stocks, bonds, and other investments automatically becomes more conservative as the target year approaches. 

Get professional help. Fidelity’s Personalized Planning & Advice service lets you delegate the day-to-day management of your 401(k) to professional investment managers. With a managed account, you can take advantage of Fidelity’s resources and experience to help ensure that:

• Your investments are managed through the ups and downs of the market.
• You’re keeping your accounts aligned with your goals through annual reviews and check-ins.
• Your account is actively managed to create an opportunity for long-term gains while managing the risk associated with investing.

Managed account fees are based on a percentage of your 401(k) account balance.

Do it yourself. Through Fidelity’s BrokerageLink, you can invest in an expanded range of investments beyond those in your plan’s standard lineup. You pay all of the associated costs and bear the risks related to making your own investment decisions.

To review your investment options and determine which approach is right for you, visit  netbenefits.com  or call 866-811-6041.

Where to learn more

• Lam Research 401(k) Guide  [PDF]
• Maximize Your 401(k) Savings [PDF]
• 401(k) Summary Plan Description  [PDF]
• Fidelity Investments: netbenefits.com or 800-835-5095
• Benefits Help Desk: [email protected] 877-291-9494

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The brightscope/ici defined contribution plan profile.

The BrightScope/ICI Defined Contribution Plan Profile  is designed to increase public understanding in this critical area of retirement savings. The research—which draws from information collected in the BrightScope Defined Contribution Plan Database, with plan-level data gathered from audited Form 5500 filings of private-sector defined contribution (DC) plans—sheds light on DC plan design across many dimensions, including:

• the number and type of investment options offered;
• the presence and design of employer contributions;
• the types of recordkeepers used by DC plans; and
• changes to plan design over time.

In addition, industrywide fee information is matched to investments in DC plans, allowing analysis of the cost of DC plans.

Research on 401(k) Plans

The brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2020 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2019 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2018 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2017 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2016 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2015 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2014 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans, 2013 (pdf), the brightscope/ici defined contribution plan profile: a close look at 401(k) plans (pdf), research on erisa 403(b) plans, the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans, 2019 (pdf), the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans, 2018 (pdf), the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans, 2017 (pdf), the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans, 2016 (pdf), the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans, 2015 (pdf), the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans 2013 (pdf), the brightscope/ici defined contribution plan profile: a close look at erisa 403(b) plans (pdf).

The stock market is sending retirement account balances soaring. Here's why experts say retirees still need to tread carefully.

• Stellar stock-market returns have boosted Americans' retirement account balances. 
• The number of 401(k) millionaires is up and average account balances are the highest in two years.
• Sources caution anyone thinking about retirement not to get complacent and plan ahead if they want to tap their gains. 

The soaring stock market is minting a lot of 401(k) millionaires. 

Thanks to a stunning market rally since the beginning of 2023, the number of people with at least $1 million in their retirement account jumped 20% year-over-year in fourth quarter of 2023, with that average account balance rising to the highest level in two years, according to Fidelity . 

While it may be tempting for bullish workers to start pulling money out to fund their post-employment lifestyles, or even start taking that money out ahead of retirement, investing experts warn against such considerations even as the market smashes records and optimism is high. 

Here are a few things experts say people need to think about if the market's stellar streak of gains may be tempting them to consider retiring or drawing on those funds early. 

People are living longer

Brian Spinelli, the co-chief investment officer at wealth advisory firm Halbert Hargrove, told Business Insider that early retirement based on market performance is irrational simply because people are living longer these days. 

"The number of years you're gonna have to draw on your own money is now getting wider. So if you retire too early, you might run out of runway with your portfolio because you live longer than you thought," he said. 

Early retirees may underestimate the required funds for their desired lifestyle due to overlooking the simple fact that they could live longer than they expect, and untaxed 401(k) contributions may necessitate higher withdrawals to cover taxes.

"The biggest single risk we see is that most investors, without heavy education, underestimate their longevity, time horizon, and opportunity cost, increasing the risk of short-term loss while increasing the risk of late stage aged poverty," Aaron Anderson, senior vice president of research at Fisher Investments, told Business Insider in an email.

"If they need $100,000 net, they're going to have to withdraw $120,000 to $130,000 a year out of their million dollar 401(k) to cover the taxes and get them that $100,000," Spinelli said, adding that with a 30-year life expectancy horizon, expecting consistent annual growth well beyond 12% or 13% without downturns is unrealistic.

Markets are volatile

Investing experts also caution against the belief that the market will keep producing strong returns year after year. Stocks gained nearly 25% in 2023, but that's an outlier and returns flatten out over time with the normal ups and downs to an annual average gain of just about 10% for the benchmark S&P 500. 

"Stocks long-term average return is around 10% per year. However, that average is made up of yearly returns that vary widely. Markets are up big (+20%) or negative nearly two-thirds of the time whereas 'average' returns (0-20%) only happen about a third of the time," Anderson wrote. 

Future uncertainty often brings a "sequence of returns risk" that's overlooked by early retirees.

"The difference between an investor that draws on their retirement funds early and one that leaves them to continue experiencing the benefits of compounding growth can be immense," Anderson added. 

Baby boomers looking to cash in on their gains could also trigger a sell-off, potentially dragging down the broader market. Some have argued that more older Americans owning stocks is risky, as they don't have the luxury to wait out a downturn and could panic sell into a correction, fueling further declines. 

Sources emphasized the need for retirees to conduct a "stress test" on their retirement plans, factoring in market corrections, life expectancy, inflation, asset drawdowns, and spending projections.

"Can you ride through this long enough for it to recover and still be able to not outlive your money? And if the answer's no, maybe that involves working more time," Spinelli said.  

• Main content

Wall St Ends Sharply Lower as Sticky Inflation Dims Rate Cut Hopes

Traders work on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., April 5, 2024. REUTERS/Andrew Kelly

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks tumbled to a lower close on Wednesday after hotter-than-expected inflation data threw cold water on hopes that the Federal Reserve would begin cutting interest rates as early as June.

All three major U.S. stock indexes veered sharply lower at the opening bell after the Labor Department's Consumer Price Index (CPI) report landed north of consensus, a reminder that inflation's road back down to the Fed's 2% target will remain a long and meandering one.

"The stickiness of inflation data caused a 'sell first ask questions later' mentality," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "And that disappointment caused a push-back on not only the potential timing of the first rate cut but how many we’re going to get."

Minutes from the Fed's March policy meeting reflected concerns that inflation's progress toward that target might have stalled, and restrictive monetary policy may need to be maintained for longer than anticipated.

"Just a week ago (Fed Chairman Jerome) Powell hinted at three cuts," Detrick added. "One has to wonder if his opinion has changed after the stubborn data we continue to see."

Equity prices were further pressured by benchmark Treasury yields, which breached 4.5% to touch the highest level since November.

Interest rate-sensitive stocks were hardest hit, with real estate primed for its biggest one-day percentage drop since June 2022.

Housing stocks registered their biggest daily decline since Jan. 23 and the Russell 2000 notched its steepest one-day slide since Feb. 13.

"Anything related to rates has clearly been hit hard today, from real estate to housing to small caps," Detrick said.

Financial markets have now priced in a dwindling 16.5% likelihood of a 25 basis point Fed rate cut in June, down from 56.0% just prior to the report's release, according to CME's FedWatch tool.

The Dow Jones Industrial Average fell 422.16 points, or 1.09%, to 38,461.51, the S&P 500 lost 49.27 points, or 0.95%, to 5,160.64 and the Nasdaq Composite dropped 136.28 points, or 0.84%, to 16,170.36.

Of the 11 major sectors of the S&P 500, all but energy ended red, with real estate shares suffering the steepest decline.

Investors will now focus on Thursday's producer prices report for a clearer picture of March inflation, and the unofficial kick-off of first quarter earnings season. On Friday, a trio of big banks - JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co - are slated to post results.

Analysts expect aggregate S&P 500 earnings in the first quarter to grow 5.0% from last year, according to LSEG data. That is lower than the 7.2% annual earnings growth for the quarter forecast on Jan. 1.

Most megacap growth stocks slipped with the exception of Nvidia Inc, which bucked the trend by rising 2.0%.

U.S.-listed shares of Alibaba advanced 2.2% after the company's co-founder Jack Ma released a memo to employees on expressing support for the internet giant's restructuring efforts - a rare move from the billionaire who has spent the last few years away from the spotlight.

Declining issues outnumbered advancing ones on the NYSE by a 5.93-to-1 ratio; on Nasdaq, a 3.58-to-1 ratio favored decliners.

The S&P 500 posted 4 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 35 new highs and 170 new lows.

Volume on U.S. exchanges was 11.91 billion shares, compared with the 11.52 billion average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; Additional reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by David Gregorio)

Copyright 2024 Thomson Reuters .

Tags: United States

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