A 401(k) is a type of employer-sponsored retirement plan. It allows you to save for retirement using pretax dollars from your paycheck. Frequently, employers will match contributions up to a certain percentage, allowing you to save even more. Then you pay taxes when you take withdrawals from the account in retirement.

How much do you need in a 401(k) to get $1,000 a month in retirement?

You'll need about $300,000 in your 401(k) to be able to withdraw $1,000 per month in retirement. This assumes you follow the 4% rule, which suggests that you withdraw 4% of your savings in the first year of retirement and adjust this amount for inflation in subsequent years.

How much will $10,000 in a 401(k) be worth in 20 years?

This varies depending on your investment rate of return and your fees. If you earned an 8% average annual return over those 20 years, your $10,000 would grow to more than $46,600.

How much should a 25-year-old have in a 401(k)?

This depends on your retirement goals and timeline. One common rule of thumb says you should save 1x your salary by age 30. If you follow this, you likely want to be in the neighborhood of 0.5x your salary by age 25.

What Is a 401(k) and How Does It Work?

By Kailey Hagen – Updated Apr 7, 2026 at 12:47 PM EST | Fact-checked by Parker Hicks

Key Points

401(k) contributions are pre-tax, lowering taxable income and deferred taxes on investment gains.
Employers may match a percentage of your 401(k) contributions, effectively offering free money.
Withdrawal options start at age 59 1/2 usually, with a 10% penalty for earlier access.

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An infographic listing the benefits of 401(k)s, including paycheck deferrals, company matches and potential tax savings. — Image source: The Motley Fool.

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A few things to keep in mind:

Catch-up contributions are available starting at age 50 and allow you to accelerate savings as retirement nears.
The super catch-up for ages 60–63 is a newer provision under the SECURE Act 2.0.
Total contribution limits include your contributions plus employer matching and any other employer-funded deposits.
You can contribute to both a 401(k) and an IRA in the same year, though income limits may affect IRA deductibility.

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Which should you choose? A useful rule of thumb:

If you expect to be in a lower tax bracket in retirement than you are now, the traditional 401(k) is likely better. You get the deduction when it's most valuable.
If you expect to be in a higher tax bracket in retirement, or you're early in your career and currently in a low bracket, the Roth 401(k) often makes more sense. You pay taxes now at a lower rate and enjoy tax-free growth for decades.
If you're unsure, splitting contributions between traditional and Roth gives you tax diversification in retirement.

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How to do a withdrawal from a 401(k)

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What if your employer doesn't offer a 401(k)?

Not everyone has access to an employer-sponsored plan. If that's your situation:

Traditional or Roth IRA: Contribution limits are lower ($7,000 in 2025 and 2026, plus $1,000 catch-up if 50+), but these accounts offer strong tax advantages and broad investment flexibility.
SEP-IRA or Solo 401(k): If you're self-employed or have freelance income, these options allow significantly higher contribution limits.
Taxable brokerage account: No tax advantages, but no contribution limits either; a good option once you've maxed tax-advantaged accounts.

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401(k) FAQs

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About the Author

Kailey Hagen, CFP, is a contributing Motley Fool retirement analyst covering Social Security, Medicare, and retirement planning. Before The Motley Fool, Kailey was a research analyst for Reviews.com focusing on credit and banking products. She is a Certified Financial Planner® and holds a bachelor’s degree in English from the University of Wisconsin-Madison.

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