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?!How to Adult

Lesson

Retirement accounts, including 401(k)s and IRAs

Published:
October 12, 2026
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  • Current-year contribution limits for 401(k)s and IRAs, income limits for Roth IRA eligibility, and early-withdrawal penalty rules — these change periodically via IRS updates.

We left these specific numbers out until they're checked against current official sources.

AThe super simple explanation

A 401(k) is a retirement account offered through an employer, often with the option for the employer to match some of your contributions.

An IRA (Individual Retirement Account) is a retirement account you open yourself, not tied to an employer.

Both come in "traditional" (tax break now, taxed later) and "Roth" (taxed now, tax-free later) versions.

Money in these accounts is generally meant to stay invested until retirement age, with penalties for withdrawing it early in most cases.

BWhy does this even matter?

  • Retirement accounts offer tax advantages that can significantly boost long-term growth compared to investing in a regular taxable account.
  • An employer 401(k) match, when available, is essentially free money toward your retirement that you'd otherwise miss out on.
  • Starting early, even with small contributions, can make a meaningful difference over decades due to compounding growth.

COkay, how does it work?

Money is set aside from your paycheck (401(k)) or deposited directly (IRA) into the retirement account.

DShow me an example

Getting the full employer match

Jamal's employer matches 401(k) contributions up to a certain percentage of his salary.

He contributes enough to get the full match, effectively receiving extra money toward his retirement that he wouldn't get otherwise.

Illustrative example with made-up people and numbers — not current rates or rules.

EWords you should know

401(k)
An employer-sponsored retirement savings plan that may include matching contributions.
IRA
Individual Retirement Account — a retirement account opened independently, not tied to an employer.
Employer match
Extra money an employer contributes to your 401(k) based on your own contributions, often up to a set limit.
Traditional account
A retirement account type that generally uses pre-tax contributions and taxes withdrawals in retirement.
Roth account
A retirement account type that generally uses after-tax contributions, allowing qualified withdrawals tax-free in retirement.
Early withdrawal penalty
An additional cost, on top of any taxes owed, for taking money out of a retirement account before a certain age, with some exceptions.
More in “Words everyone pretends to know” →

FCommon mistakes

  • Not contributing enough to a 401(k) to get the full employer match, missing out on free money.
  • Withdrawing from a retirement account early without understanding the tax and penalty consequences.
  • Leaving contributions in a default, overly conservative investment option without reviewing whether it fits your goals.
  • Assuming you can't open an IRA just because your employer offers a 401(k).
  • Not checking current IRS contribution limits and accidentally over-contributing.

GThings to know

  • Contribution limits for 401(k)s and IRAs are set and adjusted periodically by the IRS — check current limits before planning contributions.
  • Roth IRA eligibility phases out at higher income levels, with limits that are also periodically adjusted — check current IRS guidance.
  • Early withdrawals before age 59½ generally face a penalty plus taxes, though specific exceptions exist for certain situations.
  • Leaving a job doesn't mean losing a 401(k) — balances can often be rolled over into a new employer's plan or an IRA.

HQuick recap

  • 401(k)s are employer-sponsored; IRAs are opened independently — both offer tax-advantaged retirement savings.
  • Traditional accounts are taxed later; Roth accounts are taxed now but generally offer tax-free withdrawals later.
  • Getting a full employer 401(k) match, if offered, is generally a priority since it's essentially free money.
  • Contribution limits and early withdrawal rules are set by the IRS and should be checked against current guidance.

IQuestions people are too embarrassed to ask

JQuiz me

Totally optional. Nobody's grading you.

Question 1

Q1. What is an employer match in a 401(k)?

Question 2

Q2. What's a key difference between traditional and Roth retirement accounts?

Question 3

Q3. What typically happens if you withdraw from a retirement account early, outside of specific exceptions?

KWhat next?

  1. 1.Check whether your employer offers a 401(k) match and whether you're contributing enough to get all of it.
  2. 2.Look up current IRS contribution limits for 401(k)s and IRAs before planning your contributions.

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