Workplace Retirement Plans

The most common employer retirement plan, with a 2026 employee contribution limit of $24,500 (plus an $8,000 catch-up at 50 or older, or $11,250 at ages 60 to 63). Most 401(k)s offer two versions side by side.

Traditional 401(k)

Contributions go in pre-tax, lowering your taxable income today (someone earning $100,000 who contributes $5,000 is only taxed on $95,000). The money grows tax-deferred, and withdrawals in retirement are taxed as ordinary income at your marginal federal tax bracket, plus any state tax that applies (a handful of states have no income tax).

Roth 401(k)

The Roth side flips that. Contributions go in after-tax, so there's no break today, but qualified withdrawals (once you're 59½ and the account has been open 5 years) come out completely tax-free, growth included. Most plans let you split your contributions between the two sides, neither has an income limit, and any employer match always lands in a separate pre-tax account. As of 2024, Roth 401(k)s no longer require withdrawals during your lifetime. Which side wins comes down to whether your tax rate is higher now or in retirement, something you can model with the Roth vs. Traditional calculator.

The employer match

Some employers match part of what you contribute, often every dollar up to about 5% of your salary, which is free money on top of your own savings. That match usually vests over five years or less, while your own contributions are always yours right away, so if you leave before you're fully vested you forfeit the unvested portion. Many plans also auto-enroll you at a low default rate around 3%, which is frequently below what you need to capture the full match, so check your contribution percentage rather than assuming the default has you covered.

Choosing your investments

Contributing is only half of it; the money then has to be invested from the plan's menu. If you're not sure where to start, most plans offer a target-date fund named for the year closest to your expected retirement (like a "2060 Fund"), which automatically grows more conservative as that date nears. The common mistake is leaving contributions parked in cash, which barely grows.

Getting money out

While you're employed, you generally can't withdraw except through a hardship withdrawal. After you leave, you have full access, though regular taxes apply plus a 10% penalty if you're under 59½. A few situations waive that penalty: disability, death, certain large medical expenses, and leaving your employer in or after the year you turn 55 (the "Rule of 55"). Note that the first-time-home and education exceptions people often hear about apply to IRAs, not 401(k)s. Most plans also let you borrow against your balance (up to $50,000 or half your vested amount), repaid to yourself within five years, though an unpaid balance becomes taxable if you leave. Required withdrawals start at 73, unless you're still working for the sponsoring employer.

What happens when you leave your job

Your 401(k) doesn't follow you automatically, but you have four options: leave it in the old plan, roll it into your new employer's 401(k), roll it into an IRA (which usually opens up far more investment choices), or cash it out. Cashing out is almost always the costly mistake, since you'd owe tax plus the 10% penalty under 59½ and give up decades of growth. A direct rollover, where the money moves straight from one account to the next without passing through your hands, avoids any tax or penalty entirely.

If you work for a school, hospital, or nonprofit, the 403(b) is your version of the 401(k). You get the same 2026 contribution limit ($24,500) and the same choice between pre-tax and Roth contributions. At retirement you can take the money out, roll it into another account, or convert it into an annuity that pays you income for life, an option unique to this plan type.

Withdrawal penalties and required distributions work exactly like the Traditional 401(k): the same 10% penalty before 59½, the same exceptions, and the same age-73 start date. A match is common here too, though less universal than in the private sector, and employees with 15 or more years at the same employer may qualify for an extra catch-up contribution.

When you change jobs, a 403(b) rolls over much like a 401(k): into an IRA, your new employer's plan, or another 403(b), with a direct rollover keeping the whole balance tax-free. One thing worth watching is fees, since 403(b) menus often lean on annuity products that cost more than the index and mutual funds in a typical 401(k). If low-cost fund options are offered, they're usually the better long-term choice.

The tax treatment matches a 401(k) or 403(b): pre-tax contributions, tax-deferred growth, and the same 2026 limit of $24,500. The standout feature is no 10% early withdrawal penalty, ever. Leave your job at any age and you can access the money without that penalty, though you'll still owe regular income tax on it.

There are two very different versions, and the difference matters. A governmental 457(b) (offered by a city, county, or state employer) holds your money in trust, protected from the employer's creditors, and rolls over into an IRA or another employer plan when you leave. A non-governmental 457(b) (offered by some hospitals and nonprofits) doesn't get that protection: your balance technically remains an asset of the employer, so if the employer goes bankrupt you could lose it, and it generally can't be rolled into other account types.

This plan's contribution limit is also separate from a 401(k) or 403(b) limit, so a public employee with both a 403(b) and a 457(b) (common for teachers, school staff, and public university employees) can potentially max out both at once, doubling their tax-advantaged savings room.