What Is a 401(k)?

A 401(k) is a retirement savings account offered by employers that lets you contribute pre-tax dollars, reducing your taxable income today. Your money grows tax-deferred until you withdraw it in retirement, when it's taxed as ordinary income. For 2024, you can contribute up to $23,000 (or $30,500 if you're 50 or older). Many employers match a portion of your contributions — that's free money, so contribute at least enough to get the full match. Withdrawals before age 59½ trigger a 10% early withdrawal penalty.