Invest in Your Future With a 401(k) Plan
What Is a 401(k) Plan?
Benefits of a 401(k) Plan
More Control
Investment Flexibility
Employer Matching
Portability
Traditional vs. Roth 401(k)
Traditional 401(k) plans and Roth 401(k) plans differ mainly from a tax standpoint.
With a traditional 401(k), you don’t pay taxes on the money you contribute to the plan; instead, you pay state and federal taxes when you withdraw money from the plan. Roth contributions are made on an after-tax basis; in retirement you pay no income taxes on the funds you withdraw from your Roth account. You can contribute to both a traditional and a Roth 401(k) if you don’t exceed the combined contribution limit. Depending on your current and future expected income, it could be advantageous to contribute to both types of 401(k) to diversify your savings and the tax treatment of your retirement income sources.
You'll need to consider both your current income-tax bracket and your expected income-tax bracket while in retirement. In general, the traditional 401(k) is optimal for people who are in a higher tax bracket now and expect to be making less at the time of distribution, or retirement age. Roth deferrals may be most appropriate for individuals expecting to be in a higher tax bracket in retirement, allowing them to pay taxes on the contributions now, at a lower tax rate, and receive tax-free distributions in retirement.
Both traditional 401(k)s and Roth 401(k)s have annual contribution limits set by the IRS from year to year.
Your employer may also contribute to your 401(k) plan, matching your pre-tax contributions. While some employers elect to match a certain percentage of your contributions, others may choose to match $.50 on every dollar, for example.
When there is employer matching, employee-employer contributions cannot exceed a combined $72,000 per year. If you’re over 50, you’re eligible to make an additional catch-up contribution of $8,000 for a total of $80,000 with employer contributions. Participants aged 60, 61, 62, and 63 can contribute an additional amount on top of the normal contribution (not age-50) limit.* Note that any employer-matching portion cannot be designated as a Roth deferral.
You’ll pay taxes on your traditional 401(k) funds as you withdraw them. You can withdraw without penalty at age 59 1/2. But prior to that, you’ll pay a 10% early withdrawal penalty plus taxes on the dollars you take out, although some exceptions apply.
Funds withdrawn from a Roth 401(k) are tax-free so long as certain criteria are met: You must have held the account for at least five years and must be age 59 1/2 to begin making tax-free withdrawals (exceptions are made in cases of disability or upon the death of the account holder).
You must begin withdrawing the RMDs of your 401(k) funds (both traditional and Roth accounts) by April 1 of the year after you turn 73.** 401(k) RMDs are calculated according to a formula set by the IRS. Consult your 401(k) plan sponsor to determine your RMD when you decide to begin making withdrawals.
You may also be able to borrow from your 401(k) plan. Federal law permits you to borrow 50% of your account balance or a maximum of $50,000. A 401(k) loan is tax-free, and you generally have five years to repay it on a fixed schedule as specified in the plan rules. (If you have taken out a 401(k) loan to purchase a primary residence, there is a longer payback period.)
If you take out a 401(k) loan and then leave your employer, you must pay back the balance you still owe, or your loan will be treated as a distribution. You would then pay tax and possibly penalties on that amount.
** Age 70 1/2 (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before Jan. 1, 1951), or age 73 (if you were born after Dec. 31, 1950).
Frequently Asked Questions
Who is eligible for a 401(k) plan?
What are my options for my 401(k) plan if I leave my employer?
You have several choices:
401(k) Withdrawals After Age 59 1/2. Assuming you are 59 1/2 years or older when you leave employment, you can make withdrawals from your 401(k) without penalty, but you will pay taxes on the funds you withdraw, with the exception of any Roth assets. You can take payments as needed or request scheduled automatic payments and maintain control over your investments.
Keep 401(k) Plan With Previous Employer. You may choose to leave your 401(k) plan as is to maintain your plan benefits or keep your investment lineup.
Move 401(k) to a New Employer or Roll Over to an IRA. You can also roll your 401(k) funds into an IRAor roll in funds to a new employer’s 401(k), assuming plan rules permit it.
What are the 2026 401(k) plan contribution limits?
Can I take money out early?
What is the Age 55 Rule?
Although you typically can withdraw from a 401(k) without penalty after age 59 1/2, there is the “Age 55” rule, which allows you to withdraw from your 401(k) without penalty if you leave your job, or even if you’re laid off, terminated, or quit between the ages of 55 and 59 1/2. If you’re a public safety worker, the rule applies at age 50 or later.
Plan strategically for taking withdrawals from your plan — both to manage the tax bill and to provide for your future needs. For guidance, contact your MissionSquare representative.
What happens to my 401(k) plan when I die?
Your 401(k) would be considered a “survivor benefit” to your designated beneficiary or beneficiaries to receive any remaining assets upon your death. By designating beneficiaries, you can:
- Help ensure your assets are paid per your wishes
- Avoid the potential costs and delays of probate
- Allow non-spouse beneficiaries to receive additional tax benefits
Note: If you’re married, most plans require your spouse to be your beneficiary for 100% of your plan, unless your spouse formally waives this right.
Ready To Start Saving?
Enroll in your 401(k) plan today and take control of your retirement future.
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