Classroom lesson · 2026 IRS limits
The match is free money. Fees are a silent tax. Cashing out is a penalty. Simple examples, live calculators, and the 2026 numbers.
A 401(k) is not a ticker. It is a bucket from work. The job is not to pick a winner. The job is to stop leaving free money on the table, stop paying a silent fee, and stop cashing the pile out when you change jobs.
This lesson uses the IRS numbers for 2026. The classroom compounding rate is 8% — a teaching rate, not a forecast. Examples start at $25 and $50, not $50,000. Education only. Not advice. These are 401k tips you can use on the HR portal this week.
New here? Walk Start Here first. The Rule of 5% is the retirement chart. The Sunday note stays free.
The words
| Word | Plain English |
|---|---|
| 401(k) | A retirement bucket at work. Money goes in from your paycheck. |
| Match | Money your employer adds when you contribute. Free, if you put in yours. |
| Deferral | The slice of pay you send to the 401(k) instead of the checking account. |
| Vesting | How much of the match you keep if you leave the job. |
| Expense ratio | The percent a fund charges each year. Small sticker, large bite. |
| Rollover | Moving an old 401(k) to an IRA or a new plan without cashing it out. |
Never leave the match on the table
A match is money your employer adds when you contribute. These 401k tips start there. If the plan says “100% of the first 3%” and you earn $52,000, 3% is $1,560 a year. Put in $1,560 of yours. They put in $1,560. That is a 100% return before the market opens. If you put in 0%, the match is $0. You did not “save” 3%. You left it on the table. Fill the match before a Roth IRA, a taxable brokerage, or a stock you like.
Example · Maya, $48,000, 100% of the first 3%
Maya is paid twice a month. 3% is $1,440 a year — about $60 a paycheck. If she skips it, work keeps $1,440. Left alone 30 years at the classroom 8% rate, that missing match alone is about $163,000. Her $60 plus their $60, same 30 years, is about $326,000. She does not need a new ticker. She needs the box checked on the HR portal.
Match desk
The match is free money. Fill it before you pick a ticker. Annual compounding, deposits at year-end, 8% teaching rate, not a forecast.
Match formula
Paychecks a year
Snowball desk
A small habit, left alone. The cash drawer does not compound. Annual compounding, deposits at year-end, 8% teaching rate, not a forecast.
Monthly habit
Traditional vs Roth desk
Same take-home hit. Different tax bill. Neither one is a stock. Annual compounding, deposits at year-end, 8% teaching rate, not a forecast.
Fee desk
A 1% sticker looks small. Over 30 years it is not. Annual compounding, deposits at year-end, 8% minus the expense ratio, not a forecast.
Cash-out desk
A rollover is a transfer, not a shopping trip. Annual compounding, deposits at year-end, 8% teaching rate, not a forecast.
Federal rate
Raise bump desk
You will not feel 1% the way you feel a 6% leap. Annual compounding, deposits at year-end, 8% teaching rate, not a forecast.
Printed assumptions: 3% raise each year, 1% bump to a 10% cap, 100% of the first 3% match, 8% teaching rate. Frozen percent still rises with pay. The bump path adds 1% a year until 10%.
Education only — not investment, tax, or legal advice. Confirm your plan documents. 8% is a teaching rate, not a forecast.
Traditional vs Roth — same paycheck, different tax bill
A traditional 401(k) takes money out before income tax. The tax bill shows up when you withdraw. A Roth 401(k) takes money after income tax. Qualified withdrawals in retirement are tax-free. Neither one is a stock. They are tax treatments of the same bucket. Many plans let you split a paycheck between both. If you expect a higher tax rate later, Roth often teaches cleaner. If you expect a lower one later, traditional often does.
Example · same $78 less in checking
At a 22% tax rate, a $100 traditional contribution cuts take-home by about $78. A $78 Roth contribution cuts take-home by $78. Traditional put more in on day one. Roth owes no tax on qualified withdrawals. If the tax rate is still 22% later, they land in the same neighborhood after tax.
Note · 2026 high earners
If your prior-year FICA wages at this employer were over $150,000, catch-up contributions in 2026 must go in as Roth. Regular contributions can still be traditional if the plan allows.
Read the expense ratio. Then pick the cheap broad fund.
An expense ratio is the percent a fund charges every year. 0.05% is five cents per $100. 1.00% is a dollar per $100. The difference looks small on a fact sheet. It is not small over 30 years. You do not need the “best” fund. You need a cheap, broad one — a target-date fund or a total-market index — and you need to stop paying for a story.
Example · $50 a month, 30 years
At the classroom 8% rate, $50 a month becomes about $67,970. Shave that rate to 7% because of a 1% fee and it becomes about $56,676. The fund kept about $11,300. Same habit. Different sticker.
Roll it. Do not cash it out.
When you leave a job, the 401(k) is still yours. You can roll it to an IRA or to the new employer’s plan. Cashing it out is a withdrawal. If you are under 59½, you usually pay income tax plus a 10% extra tax. A rollover is a transfer, not a shopping trip. Do a direct rollover so the check never hits your checking account. A 60-day “I’ll deposit it later” story is how people accidentally cash out.
Example · Jordan, $8,000, age 34
22% federal plus 10% extra tax is 32%. Jordan’s pocket is about $5,440. The other $2,560 is tax. Left alone 20 years at 8%, the $8,000 is about $37,300 — with no new deposits. The cash-out bought a used couch. The rollover bought a future paycheck.
Do not
Do not cash out to pay a credit card, a moving van, or a “I’ll put it back.” Do not ignore an old login. Call the recordkeeper. List every old plan. Then roll.
Vesting is how much of the match you keep
Your own contributions are always yours. The match may not be — not until you vest. Two common schedules:
- Cliff. 0% until a date, then 100%. A three-year cliff means you keep none of the match if you leave at 2 years 11 months.
- Graded. A slice each year — 20% a year is common — until you are fully vested.
Read this before you resign. It is on the summary plan description, not the homepage banner.
Example · three-year cliff, leave in year two
Sam’s match is $2,000 a year. After two years the account shows $4,000 of employer money. Sam resigns one month before the cliff. That $4,000 goes back to the plan. Sam keeps only what Sam put in, plus whatever it earned. The cliff does not grade on a curve.
Cheap and broad. Not your company’s ticker.
The 401(k) is the bucket. The fund is what sits inside. A target-date fund is a mix that gets more conservative as the year on the label gets closer. A total-market index is a cheap basket of many companies. Company stock is one ticker. One ticker is not a retirement plan. You already get a paycheck from your employer. Holding a large slice of the same company in the 401(k) stacks the same risk. The classroom default: fill the match with a cheap, broad fund. Keep company stock small, or skip it.
Example · 80% in company stock
If the stock is cut in half, the paycheck and the nest egg fall together. A target-date 2055 fund at 0.08% does not need a story. It needs time. Options, covered-call ETFs, and single names wait until the match is full and the mix is boring.
Note · student loans
Some plans, under SECURE 2.0, treat qualified student-loan payments as if you had contributed — and still add the match. Ask HR. Fill any real 401(k) match first either way. Do not cash out a 401(k) to pay a loan.
Every raise, add 1%
You will not feel a 1% bump the way you feel a 6% leap. Most plans will auto-increase once a year if you check the box. Pair it with raises so the extra never fully hits take-home. Stop at a number you chose — 10% is a common classroom ceiling, not a law — after the match is full.
Example · $25, $50, $100 a month, 30 years, 8%
$25 a month → about $33,985. $50 → about $67,970. $100 → about $135,940. Before any match. The habit is the product. The ticker is not.
The IRS numbers, in plain English (tax year 2026)
You can put up to $24,500 of your own pay into a 401(k) in 2026 — traditional, Roth, or a mix. The match does not count against that employee cap. It does count toward the combined limit of $72,000. Age 50 or older: another $8,000. Ages 60, 61, 62, or 63: a super catch-up of $11,250 if the plan allows — it replaces the regular catch-up, it does not stack on top of it.
| 2026 rule | Amount | Plain English |
|---|---|---|
| Your elective deferral | $24,500 | Traditional, Roth, or a mix. Combined employee cap. |
| Catch-up, age 50+ | $8,000 | On top of the deferral. Total $32,500. |
| Super catch-up, ages 60–63 | $11,250 | Replaces the regular catch-up if the plan allows. Not stacked on top of it. |
| Employee + employer combined | $72,000 | Section 415 limit. Match and profit-sharing count here. Catch-up sits on top. |
| Roth catch-up wage test | $150,000 | Prior-year FICA wages. Over this, 2026 catch-up must be Roth. |
Checklist
- Find the match formula (HR portal or SPD). Write it as “100% of the first 3%,” not “we match.”
- Contribute at least enough to get the full match. Before a Roth IRA, a brokerage, or a ticker.
- Turn on auto-increase of 1% a year.
- Read the expense ratio on the default fund. If the target-date is over 0.50%, look for a cheaper index of the same mix.
- List every old 401(k). Do not cash them. Rollover to an IRA or the new plan.
- Check vesting before you resign. Your own money is yours. The match may not be.
- Name a beneficiary. The 401(k) form beats a will.
- If you are 50+, turn on catch-up. 2026: $8,000 extra. Ages 60–63: $11,250 if the plan allows. High earners: catch-up may have to be Roth.
Email yourself the 401(k) checklist. Calculators stay free.
The questions neighbors actually ask
What if I cannot afford the match percent?
Contribute at least the percent that unlocks the match. If you put in 0%, the match is $0. Fill the match before a Roth IRA, a brokerage, or a ticker.
Traditional or Roth 401(k)?
They are tax treatments of the same bucket, not two funds. Traditional comes out before income tax. Roth comes out after. Many plans let you split a paycheck between both.
Can I lose the match?
Your own contributions are always yours. The match may wait on a cliff or a graded schedule. Read vesting on the summary plan description before you resign.
Is a 401(k) FDIC insured?
A 401(k) is a bucket of funds, not a bank deposit. The funds inside can lose value.
I have student loans. Should I skip the 401(k)?
Some plans, under SECURE 2.0, treat qualified student-loan payments as if you had contributed — and still add the match. Ask HR. Fill any real 401(k) match first. Do not cash out a 401(k) to pay a loan.
Target-date fund or an S&P 500 index?
You need a cheap, broad mix. A target-date fund or a total-market index is the classroom default. You do not need the “best” fund. Company stock is one ticker.
What are the 2026 catch-up rules for high earners?
If prior-year FICA wages at this employer were over $150,000, 2026 catch-up must go in as Roth. Regular contributions can still be traditional if the plan allows. Ages 60–63: a super catch-up of $11,250 if the plan allows. It replaces the regular $8,000 catch-up. It does not stack on top of it.
Should I take a 401(k) loan?
Confirm your plan documents. A loan is not a rollover. Education only — not tax or legal advice.
Email yourself the 401(k) checklist. Calculators stay free.
Read How we get paid. We do not sell a 12% covered-call fantasy.
Education only — not investment, tax, or legal advice. Confirm your plan documents. 8% is a teaching rate, not a promise.