401(k)
A 401(k) is a US employer-sponsored retirement savings account. Contributions are pre-tax (traditional) or post-tax (Roth), grow tax-deferred or tax-free, and benefit from compound growth over decades.
Employee contribution limit in 2025: $23,500 (plus $7,500 catch-up for age 50+). Many employers match contributions up to a percentage of salary — this match is free money and should always be captured before any other investment.
Traditional 401(k): contributions reduce taxable income now; withdrawals in retirement are taxed. Roth 401(k): contributions are post-tax, but qualified withdrawals in retirement are completely tax-free.
Early withdrawals before age 59½ incur a 10% penalty plus income tax. Required minimum distributions (RMDs) begin at age 73.
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- Roth IRA
- A Roth IRA is a US individual retirement account funded with after-tax dollars. Investments grow tax-free, and qualified withdrawals in retirement are completely tax-free.
- Safe Withdrawal Rate (SWR)
- The safe withdrawal rate is the maximum percentage of a retirement portfolio you can withdraw annually without running out of money over a given time horizon. The 4% rule is the most widely cited guideline.
- Compound Interest
- Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It causes savings and investments to grow exponentially over time.