↳ For Tax Year 2025

* Employer + employee total contribution limits include all sources from deferrals, matching and profit sharing contributions

↳ For Tax Year 2024

* Employer + employee total contribution limits include all sources from deferrals, matching and profit sharing contributions

↳ Discretion Match – Flexible, employer-determined contributions

A discretionary match refers to employer contributions to your 401(k) plan that are determined at the employer’s discretion, offering flexibility in amount, timing, and formula. Many plans outline a “fixed” discretionary matching contribution in their plan documents, establishing a predictable schedule and formula. For example, the document might state: “The Company will provide a discretionary matching contribution equal to 50% of each participant’s elective deferrals, not exceeding 6% of the participant’s eligible compensation, contributed biweekly.” Despite this “fixed” structure, the discretionary nature allows employers to amend the plan—subject to proper participant notice and IRS guidelines—to suspend or adjust these future contributions if business needs change.

Alternatively, some employers opt for a fully discretionary approach, delaying the final matching formula determination until the end of the plan year. This must be permitted by the plan documents, which might include language such as: “The Company will establish a discretionary matching contribution formula annually, finalized no later than December 31 of the plan year, based on each participant’s elective deferrals up to 6% of compensation.” This flexibility enables employers to align contributions with financial performance or strategic priorities.

The specifics of your 401(k) discretionary match—whether “fixed” or fully discretionary—are detailed in your plan documents or Summary Plan Description (SPD). Contribution timing also varies by plan: employers may deposit matches per payroll period, quarterly, or annually, with the IRS requiring all discretionary contributions for a plan year to be deposited no later than the tax filing deadline, typically April 15 of the following year (or October 15 with a six-month extension).

Important Note: Some plans include a “last day” provision, requiring you to be employed on the last day of the plan year (e.g., December 31 for calendar-year plans) to receive the discretionary match. Check your SPD to confirm if this applies.

↳ Safe Harbor Contributions – Mandatory contributions to meet nondiscrimination rules

Unlike discretionary matching contributions, which must pass nondiscrimination tests to avoid corrective refunds or additional contributions, safe harbor 401(k) plans bypass these requirements by mandating specific employer contributions. These contributions—either matching or nonelective—are deposited into your account on a schedule determined by the plan, such as per payroll, quarterly, or at year-end for matches, and typically at year-end or early the following year for nonelective contributions. The IRS permits deposits as late as December 31 of the year following the plan year, though plans often target late February to maintain safe harbor status and testing relief.

Important Note: Safe harbor plans cannot impose a “last day” employment provision, meaning you receive these contributions even if you’re not employed on the last day of the plan year.

To Qualify As A Safe Harbor Plan – your employer must commit to one of the following contribution types, which are detailed in the tabs below:

For details on your plan’s safe harbor provisions, including contribution timing and formulas, consult your Summary Plan Description (SPD) or plan administrator.

↳ Immediate Vesting

With immediate vesting, you gain 100% ownership of employer contributions as soon as they are deposited into your account. If you leave the company at any time, these funds remain yours without forfeiture.

IMPORTANT NOTE – Safe harbor 401(k) plans require immediate vesting for mandatory contributions (e.g., basic match, enhanced match, or 3% nonelective). However, QACA (Qualified Automatic Contribution Arrangement) safe harbor matches may use a two-year cliff vesting schedule. Additionally, if your employer makes discretionary contributions beyond the safe harbor minimum, those excess amounts may follow a separate, longer vesting schedule.

↳ Cliff Vesting

Under cliff vesting, you are 0% vested during an initial service period—typically up to two years—and then become 100% vested on a specific date, often after three years of service. IRS rules cap cliff vesting at three years for employer contributions.

EXAMPLE: You work 2 years and 11 months, contributing $15,000 personally and receiving $5,000 in employer matches under a three-year cliff schedule. If you leave before completing three years, you retain your $15,000 but forfeit the $5,000 in employer contributions, as you are not yet vested.

↳ Graded Vesting

Graded vesting incrementally increases your ownership over time, starting at 0% and reaching 100% after six years of service. A common schedule is 20% vesting per year after the first year: 0% after one year, 20% after two, 40% after three, 60% after four, 80% after five, and 100% after six. IRS rules require full vesting by six years for graded schedules.

EXAMPLE: Tyler’s employer offers discretionary matching contributions with a six-year graded vesting schedule, crediting a year of service for 1,000 hours worked in a calendar year. Tyler starts in June 2007 and leaves in August 2011, working at least 1,000 hours in 2007, 2008, 2009, 2010, and 2011 (five years). With $10,000 in employer matches accumulated, Tyler is 80% vested and retains $8,000 of those contributions, forfeiting $2,000.

↳ Rollover Chart: Which Retirement Accounts Are Allowed To Be Rolled Into A 401(k) Plan

Additional Info: (1)(3)(5)(6)

(1) Qualified plans include, for example, profit-sharing, 401(k), money purchase, and defined benefit plans. (3) Must be included in income. (5) Must be an in-plan rollover. (6) Any nontaxable amounts distributed must be rolled over by direct trustee-to-trustee transfer

↳ Rolling An Old 401(k) Into Your Current 401(k) Plan

If you start a new job and your current employer’s 401(k) plan permits rollovers, you may transfer funds from a previous employer’s 401(k). This consolidates your retirement savings while retaining 401(k)-specific benefits, such as potential loan options, compared to an IRA. Before proceeding, compare the investment options, fees, and rules of both plans, as you’re not required to roll over—you can leave the old 401(k) with its prior custodian after separation from that employer.

Keeping funds in a 401(k) rather than an IRA can also provide strategic benefits. For instance, it may simplify a backdoor Roth IRA contribution by avoiding the pro-rata rule, which aggregates all IRA balances to determine taxable conversion amounts. Additionally, if you’re over 73 and still employed, an active 401(k) can delay required minimum distributions (RMDs) until retirement, a flexibility not available with IRAs.

To confirm rollover eligibility and options, review your Summary Plan Description (SPD) or consult your plan administrator.

↳ Rolling Over A Traditional IRA To Your Workplace 401(k) Plan (Reverse Rollover)

If your plan allows, you may roll a Traditional IRA (pre-tax contributions and earnings) into your current 401(k), known as a reverse rollover. This can be advantageous if you’re over 73 and employed, delaying RMDs until retirement, or if you seek to borrow from your 401(k) via a tax- and penalty-free loan (unavailable with IRAs).

Additionally, zeroing out IRA balances through a reverse rollover can facilitate a backdoor Roth IRA conversion by eliminating pro-rata rule complications. Only pre-tax IRA funds are eligible—after-tax amounts (e.g., nondeductible contributions) typically cannot be rolled into a 401(k).

For guidance on rollover options or plan-specific rules, consult your plan administrator.

Side Note: Roth IRAs cannot be rolled over into a 401(k) plan.

↳ More on Rollovers: Individuals Can Perform a Rollover in The Following Ways

1. Direct rollover – An account holder must request instructions from their plan administrator. Typically, a check is made payable to the new 401(k) or IRA custodian (e.g., “Fidelity Investments FBO [Your Name]”) and sent directly to the new plan. No taxes are withheld from the transfer amount because the funds do not pass through the individual’s hands.
2. Trustee-to-trustee transfer – The trustee or custodian of one plan transfers the rollover amount directly to the trustee or custodian of another plan. This is common for IRA-to-IRA transfers. No taxes are withheld, and the individual does not take possession of the funds.
3. 60-day rollover – If a distribution from an IRA or retirement plan is paid directly to you (e.g., a check in your name), you can deposit all or a portion of it into an eligible retirement plan within 60 days. For distributions from a retirement plan like a 401(k), taxes (typically 20%) are withheld, so you’ll need to use other funds to roll over the full pre-tax amount. For IRA distributions, taxes are not automatically withheld unless requested.
   • Note: Only one IRA-to-IRA 60-day rollover is allowed per 12-month period (this limit does not apply to direct rollovers, trustee-to-trustee transfers, or rollovers involving employer plans).

↳ Distribution After Age 59½

Once you reach age 59½, you may withdraw funds from your 401(k)—even if still employed—if your plan allows in-service distributions. Tax consequences depend on the contribution type:

• Roth – Qualified distributions (after age 59½ and a five-year holding period) are tax-free for both contributions and earnings. Non-qualified distributions tax earnings as ordinary income, but contributions (basis) remain tax-free since they were made after-tax. No 10% penalty applies.
• Pre-tax –Distributions are taxed as ordinary income. No 10% penalty applies.

↳Distribution Before Age 59½ (Typically After Separation from Service)

While employed, federal law restricts most withdrawals from your current 401(k), limiting access until after you separate from the sponsoring employer. If you take a distribution post-separation but before age 59½, tax and penalty consequences depend on the contribution type:

• Roth – Earnings are taxed as ordinary income and subject to a 10% early withdrawal penalty, unless an exception applies. Contributions (basis) are withdrawn tax- and penalty-free, as they were made after-tax.
• Pre-tax – Distributions are taxed as ordinary income and subject to a 10% early withdrawal penalty, unless an exception applies.

↳Emergency Personal Expenses Distribution (EPED)

If permitted by your plan, you may take one penalty-free Emergency Personal Expenses Distribution (EPED) per calendar year to cover unforeseeable or urgent personal or family emergency expenses. The maximum withdrawal is the lesser of:

1. $1,000
2. Your vested account balance minus $1,000

If not repaid, you must wait three calendar years before taking another EPED, at which point the $1,000 limit resets. Repayment options include:

• Payroll Deductions:Ongoing 401(k) contributions automatically count toward repayment. If you’re not contributing, you may resume contributions, but these count toward your annual elective deferral limit.
• Check Repayments: You can make repayments by check. These repayments are treated as eligible rollovers and will not count toward your annual limit on elective deferrals.

While EPEDs avoid the 10% early withdrawal penalty, the distribution is taxable as ordinary income unless from Roth contributions (basis).

↳ Hardship Distribution

A hardship distribution allows you (the participant) to withdraw funds for an immediate and heavy financial need, provided your plan offers this option. To qualify, the withdrawal must:

1. Address a specific, urgent financial hardship
2. Be limited to the amount necessary to meet that need (including taxes and penalties)

Common qualifying hardships, as defined by your plan, may include:

• Medical expenses for you, your spouse, or dependents
• Tuition, fees, and room/board for post-secondary education
• Funeral or burial expenses
• Payments to prevent eviction or foreclosure
• Repairs for damage to your primary residence
• Costs (excluding mortgage payments) to purchase a primary residence

The maximum withdrawal typically includes only your elective deferrals, though fully vested employer contributions (e.g., safe harbor amounts) may be eligible if your plan allows. Hardship distributions that occur before age 59½ are generally subject to ordinary income tax and the 10% early withdrawal penalty (unless you meet an exception to the penalty).

You may need to provide documentation or self-certify eligibility, and you must exhaust your other resources (e.g., savings, insurance) first. Unlike loans, hardship withdrawals cannot be repaid, permanently reducing your retirement savings, but you may continue contributing afterward.

↳ 401(k) Plan Loan

A 401(k) loan is a unique feature that allows you (the employee) to borrow funds from your account, becoming both the lender and borrower. It lets you access part of your funds without taxes or penalties, which otherwise would be difficult. You must eventually repay the loan back to your 401(k) account with interest, typically set at the prime rate plus 1–2%. If you fail to make timely repayments, the loan may be deemed as a distribution, which may result in you owing ordinary income tax and a 10% early withdrawal penalty (if under 59½ and no exception applies). Not all plans permit 401(k) loans, so it’s important to check your plan documents whether this option is available.

The maximum loan you can take is the lesser of: 

• 50% of your vested account balance; OR
• $50,000 minus the highest outstanding balance in the past 12 months

If you would like to take a plan loan, it’s usually a relatively simple process, and you will need to contact your plan administrator. The two main types of 401(k) loans are:

1. 401(k) general purpose loan – The loan can be used for any purpose, though some plans may impose certain restrictions. The maximum repayment schedule for this type of loan is typically 5 years.
2. 401(k) residential loans – The loan is specifically for purchasing a primary residence. In this case, you may need to provide documentation, and the repayment period can extend up to 10 years.

Repayment occurs through payroll deductions in level payments (principal plus interest), at least quarterly, though monthly or biweekly schedules are common. Early payoff is often allowed, but random or variable payments are typically prohibited unless specified in plan documents.

If you separate from employment before repayment, the outstanding balance is usually due within 60–90 days. This occurs because you (the participant) no longer have a paycheck to withhold payments from to repay the loan. If the loan is not repaid by this deadline, it may be considered a taxable distribution and you may face early withdrawal penalties if you’re under 59½.

For details on eligibility, repayment terms, or tax implications, consult your plan administrator or review your SPD.

Important Note: Once you leave a job, you generally cannot take a loan against the 401(k) held with your former employer. Funds must be rolled over into your new employer’s 401(k) plan (if they accept rollovers) before a loan can occur.

↳ Rollover Chart:Which Retirement Accounts Are Allowed To Accept A Traditional 401(k) Plan Rollover

Additional Info: (1)(2)(3)(4)(5)

(1) Qualified plans include profit-sharing, 401(k), money purchase, and defined benefit plans. (2) Only one rollover in. a 12-month period. (3) Must be included in income. (4) Must have a seperate account. (5)  Must be an in-plan rollover.

↳ Rollover Chart: Which Retirement Accounts Are Allowed To Accept A Roth 401(k) Plan Rollover

(1) Qualified plans include profit-sharing, 401(k), money purchase, and defined benefit plans.

(6) Any nontaxable amounts distributed must be rolled over by direct trustee-to-trustee transfer

↳ Rollover 401(k) Account To a IRA

Upon separating from service—or under specific plan provisions—you may roll your 401(k) into an Individual Retirement Account (IRA). This consolidates your retirement savings and often provides greater control over your assets. IRAs typically offer more diverse investment choices than 401(k) plans, enabling you to align your portfolio with your risk tolerance and goals. Additionally, IRAs may have lower administrative fees compared to many employer-sponsored plans.

Consider the following factors before proceeding:

• Backdoor Roth IRA: Rolling pre-tax 401(k) funds into an IRA could complicate a backdoor Roth IRA contribution. The IRS pro-rata rule aggregates all pre-tax IRA balances, potentially increasing the taxable portion of a Roth conversion.
• Required Minimum Distributions (RMDs): Traditional IRAs require RMDs starting at age 73, regardless of employment status. In contrast, a Traditional 401(k) allows you to delay RMDs until retirement if you’re still working for the plan sponsor (and own less than 5% of the company). Rolling into an IRA eliminates this deferral option.

Tip: If your 401(k) includes both pre-tax (Traditional) and after-tax (Roth) contributions, direct each portion to the appropriate IRA type—pre-tax to a Traditional IRA, Roth to a Roth IRA—to optimize tax treatment.

Roth 401(k) Rollover to Roth IRA: Special Considerations – When rolling a Roth 401(k) into a Roth IRA, the IRS 5-year rule requires attention. Each Roth account has its own 5-year clock for tax-free earnings withdrawals, starting when it was first funded. If your Roth IRA is new (less than 5 years old), you must wait until the 5-year period elapses to withdraw earnings tax-free, even if your Roth 401(k) met its 5-year requirement. However, Roth contributions (basis) rolled from the 401(k) can be withdrawn tax- and penalty-free at any time, as they were made after-tax. For guidance on rollover mechanics, tax implications, or plan-specific rules consult your plan administrator.

↳ More on Rollovers – Individuals Can Perform a Rollover in The Following Ways

1. Direct rollover – An account holder must request instructions from their plan administrator. Typically, a check is made payable to the new 401(k) or IRA custodian (e.g., “Fidelity Investments FBO [Your Name]”) and sent directly to the new plan. No taxes are withheld from the transfer amount because the funds do not pass through the individual’s hands.
2. Trustee-to-trustee transfer – The trustee or custodian of one plan transfers the rollover amount directly to the trustee or custodian of another plan. This is common for IRA-to-IRA transfers. No taxes are withheld, and the individual does not take possession of the funds.
3. 60-day rollover – If a distribution from an IRA or retirement plan is paid directly to you (e.g., a check in your name), you can deposit all or a portion of it into an eligible retirement plan within 60 days. For distributions from a retirement plan like a 401(k), taxes (typically 20%) are withheld, so you’ll need to use other funds to roll over the full pre-tax amount. For IRA distributions, taxes are not automatically withheld unless requested.
   • Note: Only one IRA-to-IRA 60-day rollover is allowed per 12-month period (this limit does not apply to direct rollovers, trustee-to-trustee transfers, or rollovers involving employer plans).