Tax

What is a 401(k)?

A 401(k) is a retirement account offered through your employer: a slice of each paycheck goes in before you see it. For 2026 you can defer up to $24,500 of salary — $8,000 more from age 50, and $11,250 instead of $8,000 at ages 60–63. Many employers add a match — money you only get if you contribute yourself. In a traditional 401(k) contributions lower your taxable income now and are taxed when withdrawn; in a Roth 401(k) you pay tax now and qualified withdrawals are tax-free. The investment choices are limited to the funds the plan offers.

Tax is national. This page describes the federal rules in the United States for tax year 2026. Most states add their own income tax on top, so there is never one single US rate. If you live and pay tax in another country, the rules are different — see the flags below.

One red dot: the tax only comes on the day you sell.

How it works

From your paycheck. You choose a percentage; it goes in every pay period, before tax (traditional) or after (Roth).
The match is free money. "50 % of the first 6 %" means: contribute 6 % of salary and the company adds 3 %. Not contributing enough to get the full match is leaving part of your pay on the table.
A menu, not a market. Most plans offer 10–30 mutual funds and target-date funds, not individual stocks. Look at the expense ratio of each — a 1 % fund costs $10 a year per $1,000, every year.
Vesting. Your own contributions are always yours; the employer's match may only become yours after a few years of service.
Leaving the job? You can leave the money, roll it to the new employer's plan or to an IRA. Cashing it out early means tax plus a 10 % penalty.
Total cap. Employee plus employer contributions together are capped at $72,000 for 2026.

The worked example

Salary $60,000, you contribute 6 % ($3,600), employer matches 50 % ($1,800). $5,400 a year goes in; in a traditional 401(k) your taxable income drops to $56,400, saving roughly $790 in federal tax in the 22 % bracket this year. Over 30 years at 6 % that annual $5,400 grows to about $430,000 — taxed as income when you withdraw it.

Figures for 2026 from irs.gov (Rev. Proc. 2025-32 and IR-2025-111), checked September 2026. Your state may tax the same income again. Kiggo does not calculate your tax — your broker reports to you on Form 1099, and the IRS, your state and a tax professional decide.

Kiggo says: A 401(k) is investing on autopilot with the boss chipping in — the least glamorous account and, for most people, the one that ends up biggest.

The typical beginner's mistake

Contributing 3 % when the match goes up to 6 % — and giving up half the free money. Or picking the "stable value" fund at 25 because it feels safe, and missing thirty years of growth.

How you see it in Kiggo

Kiggo explains what the funds in your plan actually hold — an S&P 500 index fund is the same 500 companies whether it sits in a 401(k) or anywhere else. Kiggo does not see your plan and does not calculate your tax.

Related terms

IRA and Roth IRA Roth IRA income limits

Frequently asked questions

What is the 401(k) limit for 2026?

$24,500 of employee deferrals, plus $8,000 catch-up from age 50, or $11,250 at ages 60–63. Employee plus employer total: $72,000. Source: IRS IR-2025-111.

Traditional or Roth 401(k)?

Traditional lowers your tax now; Roth removes tax in retirement. Which is better depends on your tax rate today versus in retirement — a question for you and a professional, not for Kiggo.

Can I contribute to a 401(k) and an IRA in the same year?

Yes, the limits are separate: $24,500 and $7,500 for 2026. A workplace plan can limit the deduction for a traditional IRA, not the Roth.

Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-22.

Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.