When can I withdraw from my 401(k)?

Penalty-free withdrawals start at age 59½. Early withdrawals face a 10% penalty plus income tax, with some exceptions (hardship, disability, Rule of 55).

What happens to my 401(k) if I change jobs?

You can leave it with your old employer, roll it into your new employer plan, roll it into an IRA, or cash it out (not recommended — penalties and taxes apply).

Should I choose Traditional or Roth 401(k)?

If you expect to be in a higher tax bracket in retirement, choose Roth (pay tax now). If you expect lower taxes in retirement, choose Traditional (pay tax later). When in doubt, split between both.

How 401(k) Plans Work

A practical guide to 401(k) retirement plans — how to contribute, get your employer match, and save on taxes.

What Is a 401(k)?

A 401(k) is an employer-sponsored retirement savings plan. You contribute a percentage of your salary, and it grows tax-deferred until retirement. Many employers match a portion of your contribution — essentially free money. The 2025 contribution limit is $23,500 ($31,000 if age 50+).

Employer Matching

A typical employer match is 50% of your contribution up to 6% of salary. On a $75,000 salary contributing 6% ($4,500), your employer adds $2,250. That is a 50% instant return on your money. Always contribute at least enough to get the full match — not doing so is leaving compensation on the table.

Tax Benefits

Traditional 401(k) contributions are pre-tax — they reduce your taxable income in the year you contribute. In the 22% bracket, every $1,000 you contribute saves $220 in federal tax. Roth 401(k) contributions are after-tax but grow and are withdrawn tax-free in retirement.

Use our 401(k) calculator to see your tax savings and effective cost.

Contribution Limits (2025)

Employee: $23,500
Catch-up (age 50+): additional $7,500 = $31,000 total
Combined (employee + employer): $70,000

Investment Options

Most 401(k) plans offer a menu of mutual funds including target-date funds (set it and forget it), index funds (low cost, broad market), bond funds, and company stock. For most people, a low-cost target-date fund matching your expected retirement year is the simplest and most effective choice.

Withdrawal Rules

Penalty-free withdrawals begin at age 59½. Required Minimum Distributions (RMDs) start at age 73. Early withdrawals (before 59½) are subject to income tax plus a 10% penalty, with exceptions for hardship, disability, and the Rule of 55 (leaving your job at 55+).

Frequently Asked Questions

When can I withdraw from my 401(k)?
Penalty-free withdrawals start at age 59½. Early withdrawals face a 10% penalty plus income tax, with some exceptions (hardship, disability, Rule of 55).
What happens to my 401(k) if I change jobs?
You can leave it with your old employer, roll it into your new employer plan, roll it into an IRA, or cash it out (not recommended — penalties and taxes apply).
Should I choose Traditional or Roth 401(k)?
If you expect to be in a higher tax bracket in retirement, choose Roth (pay tax now). If you expect lower taxes in retirement, choose Traditional (pay tax later). When in doubt, split between both.

Important Disclaimer

The figures provided by this calculator are estimates based on the information you enter and published rates at the time of writing. They do not constitute financial, tax, or legal advice, and we accept no liability for decisions made on the basis of these estimates. Your actual liability may differ depending on your individual circumstances, applicable reliefs, and any changes to rates or legislation. Always consult a qualified professional or check the latest IRS guidance at irs.gov before making financial decisions.