US rules

401(k)

By Greg Parsons, editor · Updated October 14, 2026

Educational only, not financial advice.

A 401(k) is a U.S. retirement plan set up by an employer. You choose a share of your pay to contribute, and it goes into the plan through payroll before you receive it.

Why it matters

• In a traditional 401(k), contributions go in before income tax and withdrawals are taxed as income. A Roth 401(k), if your plan offers one, works the other way round.
• Many employers match part of what you contribute.
• For 2026 the IRS limit on employee elective deferrals is $24,500, with an extra $8,000 catch-up at age 50 or older if the plan allows it. Your plan may set a lower limit.
• Withdrawals before age 59½ can face a 10% additional tax unless an exception applies.

Simple example

• You earn $60,000 and contribute 6%, or $3,600 a year. If your employer matches 50% of the first 6%, it adds $1,800.

Canadian equivalent

The closest Canadian account is a group RRSP or an employer pension plan.

Related terms

• IRA
• Roth IRA
• RRSP

Learn more

• 401(k) vs IRA