what is a 401 k 
a 401 k is a retirement savings plan that provides tax advantages to savers named after a section of the u s internal revenue code the 401 k is an employer provided defined contribution plan 1 the employer may match employee contributions with some plans the match is mandatory there are two major types of 401 k s traditional and roth with a traditional 401 k employee contributions are pretax meaning they reduce taxable income but withdrawals in retirement are taxed employee contributions to roth 401 k s on the other hand are made with after tax income there s no tax deduction in the contribution year but withdrawals qualified distributions are tax free 2below we walk you through how to start a 401 k how 401 k plans work and strategies for making the most of them investopedia ellen lindner the most important thing to know when making any decision about your 401 k is to use it in a perfect world you put the maximum amount in it but at a minimum you should contribute up to the point where your company matches what you put in said peter lazaroff financial advisor and chief investment officer at plancorp in 2023 americans saved an average of 7 1 of their salaries in their 401 k s3 which was higher than the overall personal savings rate that year 4 less than 12 of working age americans were on track in 2023 to max out their retirement contributions 5 though the 401 k employee contribution limit for 2023 was 30 000 including catch up contributions for those 50 and older and 22 500 for those under 50 in 2024 those numbers are 30 500 and 23 000 respectively 6