A 401(k) plan provides a convenient vehicle for saving for retirement, allowing you to contribute up to $19,500 in 2021 and additional amounts if you're aged 50 or older. There are two types of 401(k) plans: traditional and Roth-style plans. Traditional plans feature pretax contributions, which are taxed at ordinary rates when withdrawn in retirement. Roth plans offer after-tax contributions, but qualified withdrawals are tax free. With either plan type, employers may elect to match part or all of the contributions you make to your plan.
401(k) plans typically offer several options in which to invest contributions. If you leave your company, you may have the option to remain in the plan, or you can roll over the accumulated balance into an IRA or other retirement plan in a tax-free transaction. However, if you choose to physically receive part or all of your retirement account balance, you will typically have to pay taxes and penalties. Aside from terminating employment, funds cannot be withdrawn before age 59½ except in cases of extreme hardship. However, some 401(k)s allow you to borrow as much as 50% of your vested account balance, up to $50,000.