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401(k) Originally intended for corporate executives, the 401(k) is now, arguably, the most famous section of the US tax code and a staple in worker benefits packages and personal finance guides.
Roughly 70 million Americans, with a total of more than $7T invested, use these long-term, tax-advantaged accounts to build toward a more secure retirement.
Some critics claim that with 401(k) plans, companies offloaded the risk of retirement savings to workers without the training to avoid volatile portfolio mixes. Amid the 2008 financial crisis, many 401(k) plans lost about a quarter of their value, an event that hit those near retirement particularly hard.Explore 401(k)
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Technically speaking, a 401(k) is a type of pensionThe Employee Retirement Income Security Act of 1974 lumped both defined-contribution plans like 401(k) plans, and defined benefit plans (like what is colloquially known as a pension) under the term “pension” in order to protect workers and make retirement plan enforcement simpler. Learn more about the ERISA here. US Department of LaborThe prevalence of 401(k) plans and IRAs over pensions shifted investment risk from employers to employeesThe shift also reduced administrative costs for companies—and left millions without guaranteed retirement income. 401(k) plans were introduced in Section 401(k) of the 1978 Revenue Act, which was originally intended as a loophole for people like executives rather than the average employee. CNBCSome people roll their 401(k) into an IRA to have more control over their accountHowever, some argue that you could end up paying less money to invest in a 401(k) plan than you would to invest in an IRA. This article offers a list of pros and cons regarding rolling a 401(k) into an IRA. KiplingerAmericans ages 30 to 34 have $44,800 in their 401(k) accounts on averageAmericans ages 28 to 44 save about 13.5% of their pretax income on average, which is close to the recommended retirement savings rate of 15%. CNBCA basic guide to retirement savings account options, the IRA and the 401(k)The two main types of accounts are 401(k) plans and individual retirement accounts (IRAs)—but what do those mean, exactly? There are differences between the two types, as well as the subtypes beneath them. The WeekWhat 401(k) savers near retirement can do amid market volatilityIf you're close to retirement, volatility in the stock market can feel scary. This guide for 401(k) savers has suggestions on what to do with your retirement accounts during uncertain times, based on how close you are to the age you'd like to retire. KiplingerA 401(k) 'super catch-up' lets people between 60 and 63 add money to their 401(k)Through a "super catch-up," they can boost their retirement contributions as they prepare to stop working. But super catch-ups aren't always right for everyone. KiplingerThe average 401(k) balance for Gen Zers was $13K as of Q3 2024For millennials, the average 401(k) plan balance was more than $66K at the time. It's worth noting that retirement savings goals are often much higher than what many people actually have saved. KiplingerExplore the key differences between 401(k) plans and IRAsA 401(k) is employer-sponsored, may include matching contributions, and allows higher annual contributions (up to $23,000). An IRA is self-managed, offers greater control over investments, and has lower contribution limits ($7,000). Both plans come in traditional and Roth options, but income caps may limit IRA choices, while 401(k)s have no such restrictions. 1440About 98% of companies offering employees a 401(k) plan match employee contributionsBroadly speaking, an employer 401(k) match means that if you invest money into your 401(k), your employer will put cash in, too. But these programs are often fairly nuanced. EllevestIRAs and 401(k) plans both help individuals save for retirement, but have their differencesAnyone can open an IRA, but 401(k) plans are accessible only through an employer. These two retirement vehicles also have different contribution limits per year, with 401(k) plans allowing you to contribute significantly more than an IRA. NerdWalletThe IRS sets new contribution limits for IRAs and 401(k) plans each yearIn 2024, individuals could contribute up to $7K across all their IRAs. People aged 50 and older could contribute up to $8K. For 2025, the IRS kept the same contribution limits. Fidelity InvestmentsIf your job doesn’t offer a 401(k), you still have retirement savings optionsDo you know more than a third of working adults aren't offered a 401(k) through their jobs? If you're part of that group, you still have options for retirement savings, including IRAs, taxable investment accounts, and more. EllevestRoughly 70 million Americans have 401(k) plansTed Benna, a rural benefits consultant, proposed a reinterpretation of a small tweak to the Internal Revenue Code in 1980. This led to a fundamental transformation of how American workers plan for retirement. 1440 Daily DigestResearchers, experts, and retirees are finding that the 401(k) has left much to be desiredBaby Boomers, once the biggest generation, are now creating the largest wave of retirees in US history. Much of this generation is also the first to retire predominantly on the expectation that their 401(k) plans or similar tax-advantaged accounts performed well in the markets—which isn’t always the case. The DailyFees can eat away at your 401(k)Every investment plan has an expense ratio—a percentage of the total assets that goes to the investment manager in the form of fees. Because 401(k) plans are so common, and many of their participants are not savvy investors, the relative expense ratio for them has often excessively increased. Human Interest401(k) plans had an average of $112K as of 2023The median, however, is much lower at around $27K. The average balance of a 401(k) in the US differs across different age groups and income levels. Business InsiderThe financial crisis in 2008 had a major impact on many 401(k) plansAmid the 2008 financial crisis, stocks and bonds cratered as the broader market floundered due to the subprime mortgage crisis. Investors with so-called "target-date" funds—which shift allocations based on the maturation of a fund—shared in the slump, with some funds declining by 20% or more just a year or two away from maturation. CNBCThe 401(k) is limited in its ability to provide guaranteed retirement incomePart of the problem is the high, often hidden fees associated with the accounts and a lack of access. Plus, analysts say the annual cost in tax revenue to the government is more than $100B. TIMERoth 401(k) plans vs regular 401(k) plansA normal 401(k) defers tax payments to later, while a Roth requires no tax payments at withdrawal time. Financial experts often recommend investing in a Roth 401(k) plan or Roth IRA when someone first starts their career to lock in a relatively low tax rate. NerdWallet401(k) plans and pensions differ in who has control over the investmentsWith pension plans, a company contributes to an investment fund from which it distributes regular payments to a retired worker until their death. A 401(k) gives the worker control over contributions in a tax-advantaged account. New York Life InsuranceTed Benna is the father of the 401(k)It took a benefits consultant to highlight the financial power of a subtle, obscure tax code change buried away in Section 401, subsection k of the Internal Revenue Code. Benna realized this section, designed primarily for high-earning corporate executives, could help workers save money on taxes when preparing for retirement. The Motley FoolSmart tips for making the most of your 401(k)There’s a lot of advice about handling a 401(k), but it can be mired in disclaimers and legalese. Come prepared to your financial advisor or accountant by watching this informative take on how to properly use a 401(k), from consolidating plans to some of the most common errors. ClearValue TaxThe average American contributed nearly $6,000 to a 401(k) account in 2023That's an increase over the previous year—and roughly 8% of their total income. When employer contributions are factored in, the total average contribution to 401(k) accounts rose to $8,618 in 2023, up from $8,362 in 2022 and $8,236 in 2021. HiCapitalize401(k) is a section of the US tax codeHow did 401(k) plans get their name? Check out the 401(k) section (and subsection) of the US tax code made famous by benefits consultant Ted Benna. Tap into your inner accountant and check out the now-famous portion of the dense, 10,000-section tome that is the Internal Revenue Code. Tax NotesA 401(k) plan allows workers to save for retirement without paying taxes until laterWith a 401(k) plans you can invest more money now and let it grow with compound interest. Americans have more than $7T invested in these types of accounts. Charles SchwabWhat is a 401(k)?Should you get a 401(k)? To make sense of this obscure piece of tax code, here’s a beginner’s guide to one of the more common forms of retirement savings in the US. Learn the history of the 401(k), how to sign up for one, the different types, and more in this well-organized and concise explainer from Investopedia. InvestopediaRead about the situations where a high-yield savings account doesn't make senseWhile financial experts often recommend high-yield savings accounts, one expert argues that prioritizing adding more money to one doesn't make sense for someone who has a lot of high-interest debt or isn't taking advantage of their company's 401(k) match. The Motley FoolAmericans think they need $1.46M to retire comfortably in 2026 That's far less than what many Americans have saved. While the median retirement savings for those ages 65 to 74 is $200K, the mean is about $609K. KiplingerThe 'Seinfeld' characters would likely be financially successful todayEven though Kramer probably doesn't have a 401(k) plan, he also probably struck gold as an investor with many side hustles. GOBankingRatesThe BNPL industry boomed amid a surge in online shopping during pandemic-era lockdownsThe buy now, pay later industry allows consumers to buy something immediately and pay in installments without the need for lengthy application and approval processes or high credit scores—and fintech companies Affirm, Klarna, and Afterpay are leading the charge by targeting young adults. WSJMore than half of today’s family offices were incorporated after 2010Family offices are impacting capital markets as private wealth grows. Compared to other financial entities, they have a relatively high allocation to alternatives. ExchangesSome multibillion-dollar pension funds depend on hedge fundsPensions are responsible for safeguarding the retirement plans of many corporate and government employees alike. Pensions differ from 401(k) plans and sometimes rely on alternative assets, like hedge funds, to insulate their portfolios of billions of dollars from volatility in financial markets. Read the case top pension advisor Cambridge Associates makes for hedge funds. Cambridge Associates7 things to know about inherited IRA rulesAn inherited IRA is any kind of IRA or 401K plan you inherited from someone after they’ve died. Since there are different tax advantages for each type of retirement account, the rules you have to follow widely differ based on the account, your relationship to the deceased, and how you want to use the money. Here are the seven things you must know to navigate an inherited IRA. BankrateExplore a guide to 529 college savings plansInvestors put after-tax dollars into these education-earmarked accounts, and like a 401(k) or IRA, they invest them into stocks, bonds, or funds. When it comes time to withdraw, investors do not pay any taxes on distributions. However, the money must be used for approved expenses like college tuition, textbooks, and trade schools. MorningstarHaving two retirement accounts has its pros and consContributing to both an IRA and a 401(k) lets you increase your retirement savings by about 30% every year. However, you’ll also spend more time actively investing that money and pay more in fees. WSJ NewsAlthough anyone can contribute to a traditional IRA, not everyone can access its tax deductionsIf you or your spouse contributes to a 401(k), you likely won’t be able to deduct your traditional IRA contributions from your taxes. On the flip side, if you don’t contribute to an employer-sponsored retirement account, you’re probably eligible for that tax deduction. IntuitAn individual retirement account is a type of tax-advantaged investment accountAn IRA lets individuals at most income levels invest either pre- or post-tax money for retirement. IRAs are often good solutions for people who don’t have the option to invest in a 401(k) plan—or for those who want to put even more money aside for retirement. NerdWalletIn 2019, Congress passed the Secure Act to reform key aspects of the US tax codeKey Secure Act provisions included raising the age at which mandatory distributions take effect (to increase saving), allowing larger catch-up contributions for older individuals, and allowing employers to directly match contributions in a Roth 401(k). TIMEUS pension plan adoption has declined from 1975 to 2021Pension plans are a form of guaranteed retirement plan for long-time workers, and they were a major part of industries in the mid-20th century. With the rise of the 401(k) and similar tax-advantaged, defined-contribution accounts, these so-called defined-benefit plans have declined in use by employers. Compare US adoption of both kinds in this table. US Department of Labor
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