Roughly 72% of private industry workers have access to retirement benefits, according to the US Bureau of Labor Statistics.1 If you're one of them, here are some key 401(k) benefits to know about, to ensure you're maximizing them.
8 must-know 401(k) benefits
While all retirement accounts come with advantages to help you save for the future, you might find these 401(k) upsides especially appealing.
1. Your employer might offer a match.
About 88% of Fidelity 401(k) plan participants received some type of contribution to their 401(k) from their employer in 2025.2 A 401(k) match is one type of employer contribution. It's essentially free money your company adds to your retirement account, provided you are also contributing to the plan. Because that amount depends on how much you contribute yourself, it's wise to chip in at least enough to capture the full match.
The most common 401(k) match formula on employer plans for which Fidelity is the service provider is a dollar-for-dollar match on the first 3% of an employee's contribution, then 50 cents on the dollar on the next 2%. So if an employee contributes 5% of their salary, they effectively get another 4% from their employer—for a total 9% contribution. That is more than halfway toward Fidelity’s guideline of setting aside 15% of your pre-tax income for retirement.
Still, it's important to understand vesting requirements, or how long you need to remain an employee of the company before those employer contributions become yours forever. Leave too soon and you may give up some or all of those matching dollars.
2. 401(k)s have high contribution limits.
401(k) contribution limits are significantly higher than individual retirement account (IRA) limits.
In 2026, you can contribute up to $24,500 pre-tax or Roth to your 401(k). Some plans may allow after-tax contributions up to the combined employee and employer limit of $72,000. If you're at least age 50 at the end of the calendar year, you can add a pre-tax or Roth catch-up contribution of $8,000 (or $11,250 if age 60–63).
According to the SECURE 2.0 Act’s higher earner rule, in 2026, catch-up contributions for earners whose FICA wages (typically Box 3 of Form W-2) exceed $150,000 in the previous tax year, must be designated as Roth after-tax contributions.
If your employer's plan does not offer a Roth contribution feature and you fall under the high-earner rule, you won’t be able to make catch-up contributions to that plan.
In comparison, the IRA contribution limit for 2026 is $7,500 ($8,600 for those who are 50 or older).
3. There are no income limits for making Roth 401(k) contributions.
Roth IRA income limits could prevent you from contributing the full amount to that account. In fact, your income might make you ineligible to contribute to a Roth IRA. That's not the case with a Roth 401(k).
4. You can automate your contributions.
Generally, 401(k) contributions are automatically deducted from your paycheck and redirected to your account before you have a chance to spend the money. You choose a set percentage or a dollar amount of your earnings to contribute every payday. This strategy, known as dollar-cost averaging, can help manage risk if you end up buying more shares when the price is relatively lower and buying less when the price is relatively higher. Bonus: Automatic contributions mean you don’t have to remember to manually make them.
5. There are tax advantages.
Traditional 401(k) investments potentially grow tax-deferred. Contributions reduce your federally taxable income today, so you owe less in taxes now, no matter how much you earn. (On the other hand, whether you can deduct traditional IRA contributions from your federally taxable income for the year depends on your income and other factors.) Just know you'll be taxed on traditional 401(k) withdrawals in retirement.
Roth 401(k)s, however, are funded with after-tax dollars. You won't get a tax break for contributing, but qualified withdrawals in retirement—even on earnings—are tax-free, provided certain conditions are met.3
Another tax perk: Depending on your income, you might be able to claim the Saver's Credit when you file your tax return. It could reduce your tax bill just for making qualified contributions to eligible retirement accounts.
6. Potential gains compound.
The possible snowball effect of compounding could have a big impact on your savings over time. That's because you may earn returns on your contributions and on returns you've already accumulated. The longer your money is invested in a 401(k), the more time it has to potentially grow and compound. While this opportunity isn't unique to 401(k)s, compounding especially matters in these accounts because of some of the other account perks—high contribution limits, tax-deferred earnings, and a potential employer match—could allow for more money to be invested than in other accounts and therefore compound.
7. 401(k) funds are shielded from creditors.
In bankruptcy situations, 401(k)s are generally protected from creditors under the federal Employee Retirement Income Security Act (ERISA). Claims on other retirement accounts, including traditional and Roth IRAs, don't have the same protections and are typically subject to state laws.
8. You have options if you leave your company.
What happens to your 401(k) when you leave a job? That is generally up to you, with one exception. Your options typically include:
- Leaving your 401(k) with your former employer, though you won't be able to make new contributions, and depending on the balance in the account, you may be charged higher account maintenance fees than when you worked for that employer
- Rolling your 401(k) over into an IRA
- Transferring your 401(k) to a new 401(k) with a different employer, if that employer allows
- Cashing out, but you can expect to pay taxes and a 10% penalty unless you qualify for certain exceptions
- Depending on plan rules, if your balance is less than $7,000, it may be sent to you as a taxable distribution, rolled over to an IRA, or, if your account is eligible for Auto Portability, automatically rolled to your new 401(k)
Drawbacks of 401(k)s
As with any investment account, there are considerations to keep in mind:
Traditional 401(k)s have required minimum distributions (RMDs)
Even if you don't need the money, you must take required minimum distributions (RMDs) from a traditional 401(k) beginning at age 73. In some cases, that may push you into a higher tax bracket since these withdrawals count as taxable income. RMDs are not required for Roth 401(k)s.
There are consequences to touching your savings prior to retirement
While there are ways to access 401(k) funds ahead of retirement, doing so may come at a cost. That includes taxes, early withdrawal penalties, and lost potential growth in a tax-advantaged account.
Related: The pros and cons of early 401(k) withdrawals
401(k)s have contribution limits
There's a cap on how much money you can contribute to a 401(k) each year. While a regular brokerage account doesn't offer the same tax advantages as a 401(k), there's no limit on contributions.
There's market risk
No matter what investment account you have, there's always the risk of loss. However, the S&P 500®4 has historically produced average annualized returns of about 10%. Of course, past performance doesn't guarantee future results.
Investment options are potentially limited
Because you choose where you open an IRA, you're able to ensure that your IRA provider has the investment types you want. 401(k) investment offerings, on the other hand, are chosen by your employer, so they may be more limited.
You may have to pay fees
401(k) plans may have fees beyond the expenses associated with any investment, for administrative and recordkeeping services.
How to open a 401(k)
If your employer offers a 401(k), you may have been automatically enrolled. If not, follow these steps to open a 401(k).
- Reach out to your benefits department
- Access your benefit provider's website or fill out any required paperwork
- Specify how much you'd like to contribute each paycheck. Every plan is different, but you can likely change this amount at any time.
- Choose your investments. If you enroll but do not select investments, at the plan sponsor's instruction you will be defaulted in the plan-designated default options, which are generally a target date fund.
If you are self-employed, you may be able to open a solo 401(k) or Roth solo 401(k). To open one at Fidelity:
- Log in to your Fidelity account or create a new account if you don't already have one
- Follow these steps and answer these questions
- Complete an application, providing personal details and business information
- Submit your plan's adoption agreement to define eligibility requirements for your plan
- Make contributions in accordance with solo 401(k) contribution limits