How to think about your 401(k)
The 401(k) is the dominant private-sector retirement savings vehicle in the United States, holding more than $7 trillion in assets. Its power comes from three tax advantages that compound together: pre-tax (or Roth) contributions, tax-deferred growth, and an employer match that functions as a 50–100% immediate return on your contribution.
The 2025 contribution limits
| Limit | 2025 amount |
|---|---|
| Elective deferral (under 50) | $23,500 |
| Catch-up contribution (50+) | $7,500 |
| Super catch-up (ages 60–63) | $11,250 (SECURE 2.0) |
| Total annual additions (incl. employer) | $70,000 |
| Highly compensated employee threshold | $160,000 |
The match is the priority
If your employer offers a match, contributing enough to capture the full match is the single highest-priority retirement contribution you can make. A typical 50% match on the first 6% of pay is equivalent to a 3% salary increase — and unlike a raise, the money compounds tax-deferred for decades. Failing to capture the match is the most expensive 401(k) mistake, leaving an estimated $1,300 per worker on the table each year according to Financial Engines.
The Roth 401(k) decision
Many plans now offer a Roth 401(k) option alongside the traditional pre-tax option. Roth 401(k) contributions do not reduce current taxable income, but qualified distributions in retirement are entirely tax-free. The decision hinges on whether you expect your marginal tax rate in retirement to be higher (favor Roth) or lower (favor traditional) than your current rate. A common strategy is to split contributions between both options for tax diversification.
For the broader comparison between 401(k) and IRA — including the backdoor Roth strategy — see our 401(k) vs IRA guide.