- A 401(k) allows eligible employees to direct part of wages to an individual workplace retirement account.
- Traditional elective deferrals generally postpone federal income tax; designated Roth deferrals are included in current taxable income.
- Employer contributions may follow a matching formula and can be subject to a vesting schedule.
- The plan document, fee disclosure and investment menu control the choices available to you.
How traditional and Roth 401(k) contributions, employer matching, vesting and plan fees fit together. The examples below are explanatory, not product quotes or promises of approval, savings, coverage or investment performance.
Read the plan before choosing a percentage
Find the summary plan description, eligibility date, employer contribution formula, vesting schedule, investment menu, loan rules and fee disclosures. A contribution decision without the match formula can leave compensation unclaimed.
Traditional and Roth deferrals
| Feature | Traditional 401(k) | Designated Roth 401(k) |
|---|---|---|
| Current federal taxable income | Elective deferrals generally excluded | Deferrals generally included |
| Qualified retirement distribution | Generally taxable | Generally tax-free when requirements are met |
| Employer contribution treatment | Depends on plan design and current law; read the plan record | |
State tax treatment can differ. Contribution limits change over time, so use the current IRS page rather than an old article number.
Matching and vesting example
A hypothetical plan matches 50 cents per dollar on employee contributions up to 6% of pay. Contributing 6% would produce a 3% employer contribution under that formula. Whether the employer money is immediately yours depends on vesting terms; your own salary deferrals are always fully vested.
Annual review checklist
- Confirm beneficiary designations.
- Review the employer match and vesting schedule.
- Check total investment and administration fees.
- Rebalance only according to a documented allocation plan.
- Use current IRS limits before increasing contributions.
- Understand loan and hardship-withdrawal consequences before using them.
Use the guide for a documented decision
Before acting on 401(k) Basics: Contributions, Matching and Vesting, write down the facts that apply to your household: the current balance or coverage, the relevant deadline, the exact contract or account terms and the amount your budget can support. Then compare those facts with the official sources below and the latest documents from the institution, insurer, employer or government agency involved.
- Save the dated statement, disclosure, policy or plan document used in the comparison.
- Separate confirmed terms from estimates, marketing language and assumptions.
- Record the question that remains unresolved and who can answer it.
- Recheck the numbers after a rate, balance, income, law or household change.
Frequently asked questions
Should I always choose Roth contributions?
No. The choice depends on current and expected tax circumstances, plan options and broader retirement strategy. It is not determined by age alone.
Can an employer match be forfeited?
Employer contributions can be subject to a vesting schedule. Leaving before vesting may forfeit the unvested portion.
Are 401(k) fees visible?
Plans must provide fee information, but you may need to read participant disclosures and fund expense data rather than relying on the account dashboard.
Sources and methodology
Primary official materials used for this guide. Checked July 28, 2026. Rules, limits and product terms can change.
- IRS — 401(k) plans ↗Checked July 28, 2026
- U.S. Department of Labor — Retirement plans and benefits ↗Checked July 28, 2026