Americans are increasingly seeing the need to set aside money for retirement early. More than half of people (55%) plan to or currently rely on personal savings and investments such as 401(k) plans and IRAs, according to Empower research.

A key benefit of a 401(k) plan is that your employer automatically deducts a portion of your pre-tax wages to your account and, in many cases, offers a company match up to a given percentage.

A 401(k) can be a key player in your retirement plan – if you know how to harness their power. Keep reading to uncover more 401(k) benefits and how to take advantage of them.

Core benefits of a 401(k) plan

401(k) accounts are one way to build retirement savings, and features that are unique to these plans can help people accelerate how much they set aside.

Tax advantages

Several tax advantages help the accounts stand out. 401(k) plans allow for two types of contributions that have different tax treatments — and both can pay off in the long run. Remember you will pay taxes one way or another — the difference when it comes to 401(k) contributions is “when.”

Pre-tax contributions can help you reduce taxable income by allocating a portion of your paycheck to your 401(k) account on a pre-tax basis. You can also deduct any pre-tax 401(k) contributions on your federal tax return. With post-tax contributions — also known as Roth 401(k) contributions —you will pay taxes on that income up front as regular income, though the benefit comes later in life: Generally, you get to withdraw that money tax-free in retirement, one of the benefits of a Roth 401(k).¹

Employer match

Investing in a 401(k) can also unlock employer matching, if applicable, where the company contributes money into your account to help encourage saving. Employer match is an exercise in teamwork: If you contribute to your 401(k), the company will pay into it as well. Employers that offer this 401(k) benefit will often cap the match at a certain percentage, which may be paid on either a partial or full basis.

If your retirement plan offers matching, review what you need to do to collect the “free money.” For example, some companies may match 50% or 100% of your contributions up to a certain percentage of your salary.

What a partial 401(k) match looks like

• Criteria: Company matches 50% of what you contribute up to 5% of your salary

• If you earn $100,000 per year and you contribute 5% of your salary, or $5,000, your employer’s match would be half of that, or a $2,500 contribution

What a full 401(k) match looks like

• Criteria: Company matches 100% of what you contribute up to 5% of your salary

• If you earn $100,000 per year and you contribute 5% of your salary, or $5,000, your employer’s match would be equal to that, or a $5,000 contribution

If your employer’s 401(k) plan offers an employer match, another rule to look out for is vesting, or the time required by the company for the matched funds to fully belong to you. Some companies may outline this as a vesting schedule — in which certain amounts are unlocked at specific time frames (for example, 20% for each year of service) — or one vesting milestone (such as being “100% vested after five years”).

With those features in mind, your next question may be: How much can I save in a 401(k) plan?

401(k) contribution limits

Each year, the IRS sets contribution limits, or the amounts that can be put into a 401(k) each year across different sources. The maximum deferral limit is the amount an employee can contribute from their paycheck to a 401(k) plan that year. This includes both traditional and Roth contributions.

Workers can now tap into higher contribution limits for 401(k) accounts in 2025 compared to prior years. The individual deferral limit is now $23,500, up from $23,000 in 2024. Catch-up contributions are available for older savers to maximize their 401(k) accounts. Those ages 50 and over can contribute an additional $7,500 this year. Plus, starting in 2025, employees ages 60 to 63 can put aside $11,250 on top of the deferral limit, thanks to a change made under the SECURE 2.0 Act.²

Read more: New catch-up contribution: Retirement limit boosted for 401(k) savers in their early 60s

How automatic contributions can help you save

Another 401(k) benefit that can make saving easier for employees is automatic contributions. Employers that offer this perk enroll workers into the plan at a set time (sometimes even from your start date) and allocate a specific percentage of your wages to be contributed to the 401(k) plan. Some companies also adjust the percentage higher as you gain tenure at the company or if your salary increases. There’s always flexibility to manually change the contribution amount.

Starting a new job can bring a flurry of paperwork and onboarding, so being automatically enrolled in a 401(k) plan can help instill financial discipline. Moving forward, the funds are moved into your 401(k) before your wages hit your bank account — on either a pre- or post-tax basis depending on if you have a traditional or Roth 401(k). Since the money has already been deposited into the 401(k), there’s also less temptation to spend it.

Read more: What percentage should I contribute to my 401(k)?

Compound growth over time

A tax-advantaged 401(k) account also puts the power of compounding to work. As you accumulate money in an account (the principal amount), the greater potential for growth through compound interest — the interest you earn on your interest.

Let’s break down what saving in a 401(k) can look like with time on your side, whether it’s earlier in life versus closer to retirement. Keeping all other things equal — how much you’re investing ($15,000 per year) and the rate of return (8%) — the importance of compounding shines through on the bottom line:

^{Source: Empower 401(k) calculator. FOR ILLUSTRATIVE PURPOSES ONLY. This hypothetical illustration does not reflect a particular investment and is not a guarantee of future results. It assumes an 8% annual rate of return, reinvestment of earnings, and no withdrawals. Rates of return may vary. The illustration does not reflect fees, which could change the outcomes provided.}

Read more: Understanding compound interest and its power

Early contributions matter, since more years of saving means more years for that principal to grow its earning potential.

Portability and rollover options

An important benefit of a 401(k) account is that you can maintain flexibility in how you manage your savings over time — whether that’s how to allocate your money or how to adjust your savings plan  throughout your career.

If you’re changing jobs, you can roll over your existing money into another 401(k) plan if your new employer offers one. For those taking a career break or retiring, there’s also the option to move the money into an individual retirement account (IRA), which you can set up independently from an employer.

IRAs also come in similar setups as 401(k)s – with a traditional IRA housing pre-tax money and a Roth IRA for post-tax money. Be sure to comply with the rollover rules to transfer funds, so you can carry over the tax advantages from your 401(k) and not be on the hook to pay extra penalties.

Read more: How to roll over a 401(k)

401(k) considerations to keep in mind

When it comes to a 401(k), it’s important to “set it” but not “forget it.” Here are a few key things to pay attention to as you get started and keep your retirement savings on track:

• Get to know your plan offerings: Some plans may have limited investment options, and being aware of expense ratios and fees can help you make the most of your choices

• Make sure to check in: The funds and investment options that your employer offers in the 401(k) plan can change over time, so make sure you know how to log into your account and review your contribution rate and investment mix to see if you need to rebalance either, depending on your situation*

• Follow the rules: The main goal of a 401(k) account is to save for retirement, and rules have been built with that in mind. Some plans may allow you to take a loan from your 401(k), but you should be aware of early withdrawal penalties should you choose to pull money out. When you reach a certain age, you may need to take required minimum distributions, which can affect your taxes and overall savings growth. Moving money to a Roth IRA, for example, could help with RMDs, since they’re generally not required

Read more: 401(k) withdrawal rules: How to avoid penalties

Starting the savings engine

Kickstarting your retirement savings with a 401(k) combines multiple money-maximizing strategies: Tax benefits, employer match, and the power of compounding. Utilizing the benefits of a 401(k) to your advantage can help you make progress towards your financial goals and help set you up for retirement.

Tools like Empower’s free Retirement Planner can help illustrate different scenarios across life stages. To get a deeper look at your finances overall, you may want to consider consulting a financial advisor, who can help balance short-term money goals and your long-term retirement planning.