401(k)

A 401(k) is a tax-advantaged retirement savings plan offered by US employers. Employees contribute a portion of their salary, and many employers match contributions up to a certain percentage. **How it works:** - Employee elects to contribute a percentage of their paycheck (up to $23,000 in 2024 for employees under 50) - Contributions come out pre-tax (traditional 401k), reducing taxable income now, or post-tax (Roth 401k), reducing taxes at retirement - Many employers match contributions: 'We match 50% of your contribution up to 6% of salary' is a common structure - Investments grow tax-deferred (traditional) or tax-free (Roth) - Withdrawals in retirement are taxed as ordinary income (traditional) or tax-free (Roth) **The employer match:** Employer matching is free money. A 100% match on the first 3% of salary = an immediate 3% raise on the money you contribute. Always contribute at least up to the full match. Not doing so is leaving guaranteed compensation on the table. **Vesting of the match:** Many employer matches have their own vesting schedule. You must stay a certain number of years before the matched contributions are fully yours. '3-year cliff' or 'graded 3-year' are common. **For job comparison:** Calculate the annual value of the employer match as part of total compensation. A company matching 100% up to 4% on a $100,000 salary contributes $4,000/year to your retirement, real compensation with significant long-term impact.