What makes a 401(k) different
Contributions come out of payroll before you see them, which removes the decision to save each month. Traditional contributions also reduce taxable income in the year you make them.
The employer match is the part that matters most. A 50% match is an immediate 50% return before the money is invested in anything — no market return competes with that.
Contribution limits
The IRS caps employee contributions annually and adjusts the figure most years, with an additional catch-up allowance from age 50. Employer contributions sit under a separate, higher combined cap.
Check the current figures on IRS.gov rather than relying on a remembered number.
Vesting
Your own contributions are always yours immediately. Employer contributions may vest on a schedule — all at once after a set period, or gradually over several years. Leaving before you vest can forfeit the employer portion entirely, so it is worth knowing your date before changing jobs.
Fees deserve attention
Plan administration costs and fund expense ratios are deducted silently from returns. The difference between a 0.05% index fund and a 1% actively managed one compounds into a large sum over a career.
A common approach is to contribute enough to capture the full match regardless of plan quality, then direct additional savings to an IRA where you control the fund choice.
Withdrawals
Withdrawing before age 59½ generally triggers income tax plus a 10% penalty, with limited exceptions. Required minimum distributions begin later in life for traditional balances.
For how match formulas work in detail, see How 401(k) Matching Works.