401(k)
A 401(k) is an employer-sponsored defined-contribution retirement plan, named for the IRC section that authorizes it. Employees defer a portion of salary into the plan (pre-tax or Roth, at their election), and employers commonly match a percentage of contributions. Annual limits and the employer's plan document govern what's actually allowed.
401(k) plans are the dominant US retirement-savings vehicle, holding ~$8 trillion in assets across ~70 million active participants. The 2026 employee elective-deferral limit is $23,500, with a $7,500 catch-up contribution for participants aged 50+ and a higher $11,250 catch-up for those aged 60–63 under SECURE 2.0. The combined employer + employee annual addition limit (§415) is $70,000 for 2026.
Most plans offer two tax treatments per dollar contributed: traditional pre-tax (no current tax, ordinary income at distribution) and Roth (after-tax now, tax-free withdrawal in retirement). Some larger plans add a third bucket — after-tax non-Roth contributions — which enables the Mega Backdoor Roth strategy when combined with in-plan conversion or in-service rollover.
Plan features vary widely. Vesting schedules govern how employer match dollars become the employee's property over time (immediate, cliff, or graded). Loan provisions allow borrowing up to 50% of the vested balance ($50,000 cap) at the prime rate, repaid via payroll deduction. Hardship withdrawals are taxable distributions under specific need categories. Self-directed brokerage windows let participants invest beyond the plan's pre-selected fund menu in larger or more sophisticated plans. Each of these is a separate test surface for any wealth platform that aggregates 401(k) data.
Realistic 401(k) test data needs the full structural envelope: source (employee pre-tax / employee Roth / employer match / employer non-elective / after-tax non-Roth), vesting schedule and vested-to-date, outstanding loan balance and amortization, plan-level investment menu, and (in larger plans) self-directed brokerage holdings. Households should carry the right age-mix of catch-up eligibility, including the new SECURE 2.0 §107 60–63 super-catch-up cohort.
Common pitfalls
- Mixing pre-tax and Roth dollars in a single sub-account — they have different tax treatment at distribution and must be tracked separately.
- Ignoring the 5-year clock on Roth 401(k) qualified-distribution status — it is plan-specific and does not transfer cleanly to a Roth IRA on rollover.
- Treating a 401(k) as an IRA for §1091 wash-sale purposes — 401(k) purchases do NOT trigger wash sales on taxable-account losses (Rev. Rul. 2008-5 stops at IRAs).
- Forgetting that a participant can have multiple 401(k)s across employers — combined elective-deferral limit is per person, but the §415 employer-addition limit is per plan.
Examples
How a typical mid-career engineer's 401(k) breaks down by source.
{
"account_type": "401k",
"balance_total": 412350,
"sources": {
"employee_pretax": 215000,
"employee_roth": 38000,
"employer_match": 124000,
"employer_nonelective": 18000,
"after_tax_nonroth": 17350
},
"vested_pct": 1.0,
"outstanding_loan": 0
}