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401(k) Matching

A benefit where employers match a percentage of an employee’s contributions to their 401(k) retirement savings plan up to a certain limit.

Retirement and 401k

Automatic Enrollment

A process where employees are automatically enrolled in a retirement savings plan, such as a 401(k), unless they opt-out.

Retirement and 401k

Contribution Limits

The contribution limit for defined contribution plans (401K) is $23,000 for the year. An additional $23,000 may be saved in non-qualified accounts (457, deferred compensation). Each individual may contribute $7,000 to an IRA or Roth IRA. The contribution can be split however you like, for example, with $3,500 going to traditional and $3,500 going to Roth.

Retirement and 401k

Deferred Compensation

A portion of an employee's income that is paid out at a later date, often used in retirement plans or executive compensation packages.

Retirement and 401k

Deferred Retirement Option Plan (DROP)

This program allows employees eligible for retirement to continue working while accumulating retirement benefits in a separate account, which are paid out in a lump sum at retirement.

Retirement and 401k

Defined Benefit Plan

A retirement plan where the employer guarantees a specific payout amount to employees at retirement, typically based on salary and years of service.

Retirement and 401k

Defined Contribution Plan

A retirement plan where the employer, employee, or both make regular contributions, but the payout at retirement depends on the investment's performance, as in 401(k) or 403(b) plans.

Retirement and 401k

Pension Plan

A retirement plan in which an employer provides a fixed monthly payment to employees after they retire, based on their salary and years of service.

Retirement and 401k

Profit-Sharing Plan

A plan where companies share profits with employees, often through contributions to retirement plans or direct cash bonuses, based on company performance.

Retirement and 401k

Required Minimum Distributions (RMD)

Amount of money you have to take out of your retirement account each year after you reach a certain age, 73 currently, based on calculations from the IRS's Uniform Lifetime Table or Joint Life and Last Survivor Expectancy Table.

Retirement and 401k

Retirement Plan Vesting

The process by which employees earn the right to employer contributions to their retirement plan over time.

Retirement and 401k

Retirement Readiness

The degree to which an individual is financially prepared for retirement, often measured by savings, income sources, and projected expenses.

Retirement and 401k

Traditional vs. Roth

With traditional, you contribute pre-tax dollars, which reduces your taxable income for the year. However, you'll pay income taxes on withdrawals in retirement. With Roth, you contribute after-tax dollars, so your contributions don't reduce your taxable income. In exchange, your money grows tax-free and you'll be able to withdraw it tax-free in retirement.

Retirement and 401k