401(k) basics: match, vesting, contributions

A 401(k) is an employer-sponsored retirement account. Money goes in pre-tax, grows tax-deferred, and is taxed on the way out in retirement. The account has your name on it and follows you if you change jobs. In 2026, the contribution limit is $24,500 for employees under 50 (it was $23,500 in 2025 — the IRS adjusts it most years).

The employer match

Most 401(k) plans include a matching contribution from your employer. Typical match: 50% of your contribution up to 6% of your salary (so you contribute 6%, they add 3%, total 9% going into your account). Some generous plans match dollar-for-dollar up to 6%.

In dollars: on an $80,000 salary with a 50%-up-to-6% match, contributing 6% ($4,800/year) gets you $2,400 of employer money annually. Skip the match for a decade and you have not just lost $24,000 of contributions — at a 7% average return, you have lost roughly $35,000 of account value (estimate), and the gap keeps compounding for every year the money would have stayed invested.

One trap worth knowing: if you front-load contributions and hit the annual limit by September, some plans stop matching for the rest of the year because there is no contribution left to match. Plans with a true-up provision fix this automatically at year end. Check whether yours has one before racing to max out early.

Vesting

Vesting is how long you have to stay at a company before the employer match becomes fully yours. Common schedules: immediate (rare and excellent), 3-year cliff (you get nothing if you leave in years 1–2, everything if you leave after year 3), or graded (20–25% per year over 4–5 years). Your own contributions are always 100% yours from day one.

Vesting matters most when you are deciding when to leave a job. If you are 4 months from a 3-year cliff with $9,000 of unvested match, that is a $9,000 decision — worth factoring into your start-date negotiation with the next employer, or even asking them to cover as a signing bonus. Recruiters hear this request all the time; it is not exotic.

Traditional vs. Roth 401(k)

Most plans let you choose: Traditional (pretax contribution, taxed in retirement) or Roth (post-tax contribution, tax-free in retirement). Rule of thumb: if you think your tax rate will be higher in retirement, pick Roth. Lower, pick Traditional. Unsure, split the difference.

Two details people miss here. First, the employer match always lands in the traditional pre-tax bucket regardless of which side you choose, so even a 100% Roth contributor builds some taxable-later money automatically. Second, starting in 2026, catch-up contributions for anyone who earned over $145,000 in prior-year wages must go in as Roth under SECURE 2.0 — high earners over 50 lose the pre-tax option for the catch-up portion whether they like it or not.

If your plan does not offer a Roth option at all, that is worth a polite email to HR. Adding one costs the company almost nothing, and plans respond to employee requests more often than people assume.

When you leave a job

Your 401(k) stays with the old employer until you move it. Options: leave it, roll it to the new employer's 401(k), or roll it to an IRA. Rolling to an IRA usually gives you the most flexibility and cheapest investment options.

What this looks like in practice

A 30-year-old earning $70,000 who contributes 10% with a 3% employer match puts about $9,100 a year into the account. At a 7% average annual return, that is roughly $430,000 by 55 and about $900,000 by 65 (estimates in future dollars, before any raises). Nothing clever happened there — no stock picking, no timing, just a boring index fund and three decades of automatic payroll deductions.

The percentage matters more than it looks. The same person contributing only enough to get the match — 6% instead of 10% — ends up near $650,000 at 65 instead of $900,000. The difference between a decent retirement and a comfortable one is often just a few percentage points of salary, set once and never thought about again.

Common 401(k) mistakes

• Leaving contributions in the default money market or target-date fund without ever checking what you are invested in — or paying 1%+ expense ratios when index options exist in the plan.
• Not increasing contributions after raises. A 1% auto-escalation each year is painless and roughly doubles most people's savings rate within a decade.
• Treating the account as a piggy bank via 401(k) loans. The loan repays with after-tax money, and if you leave the job, the balance can come due quickly.
• Forgetting old accounts entirely. Millions of orphaned 401(k)s sit in high-fee plans with outdated addresses on file.
• Assuming the contribution limit is the goal. The goal is a savings rate that funds your retirement; the limit is just a ceiling.

None of these mistakes feel dramatic in the moment, which is exactly why they persist. The fix for nearly all of them is the same: pick low-cost funds once, automate the escalation, and stop touching the account. The 401(k) rewards neglect of the right kind.

If you remember nothing else: capture the whole match, choose the cheapest broad index funds your plan offers, nudge the percentage up every year, and never cash out when you change jobs. That is 95% of 401(k) mastery, and none of it requires watching the market.