Chapter 03 — Money & Finance

How does a 401(k) work?

A 401(k) is a workplace retirement account: you contribute pre-tax money straight from your paycheck (lowering your taxable income now), your employer often matches part of it, and it grows tax-deferred until you withdraw it at retirement. The 2026 employee contribution limit is around $23,500; $31,000 if you're 50+.

Follow-up questions

How much should I contribute?

At minimum, enough to get the full employer match — anything less is leaving free money. Aim for 15% of gross income (match included) if you can.

What's a Roth 401(k)?

Same account, but you contribute after-tax money and withdrawals in retirement are tax-free. Useful if you expect your tax rate to be higher later.

What happens to it if I change jobs?

Three options: leave it with the old plan, roll it into the new employer's 401(k), or roll it into an IRA. Rolling to an IRA usually gives you the most investment choices.

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