This account will put you ahead in the retirement saving game

Savings options for retirement are plentiful, but a survey conducted by Goldman Sachs Asset Management in 2025 suggests that one plan in particular could be a huge asset — the 401(k) plan. If you have access to a 401(k) plan, you may be able to accumulate 29% more in retirement savings than those without access.

A 401(k) retirement plan is generally sponsored by employers, and some companies are willing to match funds that an employee contributes to it.

If your employer doesn’t offer a 401(k) plan, don’t worry. You still have options.

A 401(k) could mean more savings for retirement

Tax benefits, as well as employer matches, can play big roles in saving for retirement — and a 401(k) typically comes with both. According to the report, savers with 401(k) reported having a higher savings rate compared to income. They also said they felt more prepared for retirement and felt more likely to reach their retirement savings goals, thanks to having a 401(k).

A 401(k) offers tax advantages

A traditional 401(k) offers a great tax advantage: You can make pre-tax contributions. The money in your account is tax-deferred. That is, you do not have to pay income tax on what you contribute to the plan until you begin withdrawing from it. So your money can grow without being diminished by taxes for years, even decades.

And that’s not all. You can also deduct the amount you contribute from your taxable income. For example, if your weekly salary is $1,500 and you contribute $75 of it to your 401(k), your employer will calculate your tax liability as $1,420. You don’t have to report the $75 on your tax return. If you stay consistent week after week, that will amount to $3,900 ($75 x $52) of your annual income protected from taxes for years. The interest your account accrues is not taxable either.

On the other hand, a Roth 401(k) works differently. You don’t get a tax break upfront, but your withdrawals are tax-free, as long as you’re over 59½.

“Some plans offer a Roth 401(k) option where contributions are made after taxes,” says Miles Zweiger, a wealth advisor at Adams Wealth Partners. “Withdrawals in retirement can then be completely tax-free if you follow the rules. Many people split contributions between traditional and Roth accounts to keep their tax options open. The choice boils down to this: Do you want to reduce your taxes now or later?”

However, it’s important to remember that if you make withdrawals from your account before age 59½, you will pay a 10% tax penalty. The Internal Revenue Service (IRS) allows some exceptions, including disabilities, the birth or adoption of a child, first-time homebuyers, and the effects of federally declared disasters. The list of exceptions is extensive, so be sure to consult the IRS website.

401(k) Match: Additional provision from your employer

If your employer offers matching contributions, it’s wise to take advantage of them, if you can.

Here’s how that could work. Remember our example above? You earn a weekly salary of $1,500 and contribute $75 of that to your traditional 401(k). That $75 is 5% of your salary. The average employer match is 4.6%, but let’s assume your employer’s policy was 5%. This means that your employer will match your contribution (i.e. contribute the same amount as you contribute) by a certain percentage of your salary. In this case, it is 5%. So, $150 per paycheck would be contributed to your 401(k): $75 from you, and $75 from your employer. If you contribute $225 per week (15% of your salary), your employer will still contribute $75, since 5% of your salary is the maximum.

However, there can be a bit of a catch here. Employer matches are often tied to a vesting schedule. This means that you can only keep this money if you remain an employee of the company for a certain period of time (unless you are a participant in a safe harbor or SIMPLE plan). However, your contributions are always 100% yours.

There is a limit to the amount you can contribute to your 401(k) plan

The IRS sets limits on the amount you can contribute to your 401(k) each year. It is adjusted annually to keep pace with inflation.

If you’re 49 or younger, you can contribute up to $23,500 to your 401(k) plan in 2025, and $24,500 in 2026. You can contribute an additional $7,500 if you’re 50 or older, or an additional $11,250 if you’re 60, 61, 62 or 63. This increases by $500 in 2026.

Matches made by the employer do not count toward this limit, but have their own caps. Depending on your age, the total amount you contributed to your account in 2025 (i.e., your contributions combined with your employer matching contributions) cannot exceed $70,000, $77,500, or $81,250, respectively.

You will need to maximize your contributions, up to these limits. Fidelity Investments suggests a goal of 15% of your income before taxes, including employer matches, if any.

Zueger recommends working from there. “Increase gradually,” he says. “Increase your contributions by 1% each year.”

If you’re self-employed, you have options

Let’s say you’re self-employed, or you work for a company that doesn’t offer a 401(k) plan. You have two options.

If you own a business with no employees, you can set up a single-participant or solo 401(k). The rules are the same for this type of plan as they are for an employer-sponsored 401(k), but in this case, you are the employer and the employee. So, you can make contributions up to your maximum and add a matching employer as well.

You can also contribute to an Individual Retirement Account (IRA). However, you cannot save as much annually for an IRA. For 2025, the IRS contribution limit is just $7,000 per year if you’re under 50, and increases by an additional $1,000 if you’re 50 or older.

IRA accounts are available in both traditional and Roth versions. You can set one up for yourself or have a financial professional do it for you. Keep in mind that if you have a 401(k) at work, you can also open a personal IRA. By doing this, and contributing regularly to both, you will magnify your total tax-free savings.

Bottom line

It’s time to start preparing financially for your retirement years, even if they seem a long way off. A 401(k) can be a good savings option, putting you ahead of the game.

“A 401(k) isn’t just another line in your paycheck,” Zweiger says. “It can be one of the most important parts of your long-term financial independence. Whether through maximizing contributions, using employer matches, or building your own retirement plan as a business owner, consistency and clarity are key.”