🎯 In 30 seconds: Retirement accounts are ordinary investments wrapped in a tax break. A 401(k) or 403(b) comes through work, often with a matching contribution. An IRA you open yourself. “Traditional” means a tax break now and tax later; “Roth” means tax now and tax-free later. For 2026 the IRS lets you put up to $24,500 into a 401(k) and $7,500 into an IRA, with more if you are 50 or older.
The account types in plain words
| Account | Who offers it | Key feature |
|---|---|---|
| 401(k) | Private employers | Money comes out of each paycheck; employer may match part of it. |
| 403(b) | Public schools, hospitals, many nonprofits | Works much like a 401(k); same 2026 employee limit. |
| Governmental 457(b) | State and local governments | Same employee limit; check your plan’s rules on withdrawals after leaving the job. |
| Thrift Savings Plan (TSP) | Federal employees and the military | Same employee limit; very low-cost funds. |
| Traditional IRA | You open it at a bank or broker | Contribution may be deductible; withdrawals taxed. |
| Roth IRA | You open it at a bank or broker | No deduction; qualified withdrawals tax-free; income limits apply. |
Many workplace plans also offer a Roth 401(k) option inside the same plan. The account is a wrapper; inside it you still choose investments, often a target-date fund or index funds. The basics of those choices are in Investing 101.
Traditional or Roth: the one real question
The question is when you would rather pay the income tax: now or in retirement.
- Traditional: the contribution lowers this year’s taxable income. If you are in the 12% federal bracket, putting $3,000 in a traditional 401(k) cuts this year’s federal income tax by about $360. You pay income tax on everything you take out later.
- Roth: no break today. Qualified withdrawals in retirement, including all the growth, are tax-free.
A common rule of thumb: people early in their careers, in low brackets, often lean Roth; people in their peak earning years often lean traditional. Many split the difference because nobody knows future tax rates. The How US income tax works page under Secure Your Future explains brackets.
The 2026 limits (from the IRS)
| 401(k), 403(b), governmental 457, TSP: employee limit | $24,500 |
| Catch-up, age 50 and over | $8,000 more (total $32,500) |
| Catch-up, ages 60–63 | $11,250 more, instead of $8,000 |
| IRA limit (traditional and Roth combined) | $7,500 |
| IRA catch-up, age 50 and over | $1,100 more (total $8,600) |
| Roth IRA phase-out, single | Modified AGI $153,000–$168,000 |
| Roth IRA phase-out, married filing jointly | Modified AGI $242,000–$252,000 |
| Traditional IRA deduction phase-out, single, covered by a work plan | Modified AGI $81,000–$91,000 |
Two 2026 details. First, if your wages from the employer were over $150,000 last year, your catch-up contributions in a plan with a Roth option must go in as Roth. Second, the employer match does not count against your $24,500. The IRS updates these numbers each fall, so check the link in Sources before you set contributions.
The employer match: worked example
Diego earns $50,000. His employer matches 50 cents per dollar on the first 6% of pay he contributes.
| Diego contributes | His dollars | Employer match | Total a year |
|---|---|---|---|
| 3% of pay | $1,500 | $750 | $2,250 |
| 6% of pay | $3,000 | $1,500 | $4,500 |
| 10% of pay | $5,000 | $1,500 (match stops at 6%) | $6,500 |
At 3%, Diego leaves $750 a year of match on the table. That is an instant 50% return on the extra $1,500 he could have put in. Matching formulas vary a lot, so find yours in the plan’s summary plan description or on the benefits website.
Vesting: when the match is really yours
Your own contributions are always 100% yours. Employer contributions may “vest” over time, which means you earn ownership by staying. Under IRS rules, a 401(k) match must vest at least as fast as one of these two schedules:
| Years of service | 3-year cliff | 6-year graded |
|---|---|---|
| Under 2 | 0% | 0% |
| 2 | 0% | 20% |
| 3 | 100% | 40% |
| 4 | 100% | 60% |
| 5 | 100% | 80% |
| 6 | 100% | 100% |
Many plans vest faster, and some vest immediately. If Diego’s plan uses the 6-year graded schedule and he leaves after 3 years with $4,500 of match in the account, he keeps 40%, or $1,800, plus all of his own money. If you are thinking about changing jobs, check your vesting date first. A few months can be worth thousands.
Getting money out, and leaving a job
- Before age 59½, withdrawals from these accounts usually mean income tax plus a 10% additional tax, unless an IRS exception applies (for example, leaving your job in or after the year you turn 55, for a workplace plan, or one emergency withdrawal of up to $1,000 a year).
- Roth IRA contributions (not the earnings) can be taken back out at any time without tax or penalty, because the IRS treats contributions as coming out first.
- When you leave a job, the common options are to leave the money in the old plan, move it to the new employer’s plan, or roll it into an IRA. A direct rollover (plan to plan, or plan to IRA) avoids withholding and taxes. Cashing out triggers both.
- Contribute enough to get the full employer match.
- Pay off high-interest debt.
- Fund an IRA, or raise the workplace contribution, a percent at a time.
- Lower-income savers: check whether you qualify for the Saver’s Credit (for 2026, adjusted gross income up to $40,250 single or $80,500 married filing jointly).
- What is the 2026 employee limit for a 401(k)? Answer: $24,500, plus catch-up contributions at age 50 and over.
- Does the employer match count against your $24,500? Answer: No.
- On a 6-year graded schedule, how much of the match do you keep after 3 years? Answer: 40%.
- What can come out of a Roth IRA any time without tax or penalty? Answer: Your contributions (not the earnings).