401(k)
An employer-sponsored retirement account with tax advantages and, often, matching contributions.
In a traditional 401(k), contributions come out before income tax is applied, balances grow untaxed, and withdrawals are taxed as ordinary income. The tax is deferred rather than avoided, so the arrangement is favorable to the extent the eventual rate is lower than the current one.
The 2025 employee limit is $23,500, rising to $31,000 from age 50 with the catch-up. Employer contributions sit outside that limit and count against a separate, much higher combined cap. These figures are indexed to inflation and change most years.
Withdrawals before age 59½ generally carry a 10% penalty on top of income tax. The exceptions are specific rather than general: separation from service at 55 or later, substantially equal periodic payments under rule 72(t), disability, and certain medical costs each have their own conditions.
Worked through
401(k) Mechanics
- 1
$5,000 gross pay
Before any deduction
- 2
$1,000 contributed pre-tax
Taxable income falls to $4,000
- 3
$500 employer match at 50%
Outside the employee limit
- 4
$1,500 reaches the account
Employee and employer combined
- 5
$250 tax deferred
At a 25% marginal rate
Where this lives in Promi
Accounts and Investing pages. 401(k) balances sync with the rest of the portfolio.
See your own 401(k)
Promi computes this from your linked accounts, with the definition one click from the number.
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