What Are the 5 Types of 401(k) Plans?

Most employers offer a 401(k) plan as part of their employee benefits package. This defined contribution plan helps employees save for retirement.

Many employers offer matching 401(k) contributions up to a certain amount or percentage to encourage employees to save for retirement. The money employees have to live on in later years depends on the amount contributed and the performance of the underlying investments.

The following are the five main types of 401(k) plans.

1. Traditional 401(k)

Employees with a traditional 401(k) account typically make pre-tax contributions through payroll deductions. Employers might make matching contributions, such as 50 cents per dollar of the employee’s contributions, up to 6% of the employee’s salary. The money is invested in the employee’s chosen plan offerings, such as mutual funds.

Traditional 401(k) Contribution Limits

The IRS sets the annual maximum an employee can contribute to a 401(k) account. The limits for 2026 are:

• $24,500 for employees under age 50

• $32,500 for employees aged 50 to 59 or 64 and up

• $35,750 for employees aged 60 to 63

Traditional 401(k) Tax Implications

Because an employee’s traditional 401(k) contributions are tax-deferred, the amount of their contributions lowers their taxable income for the year. For instance, an employee who earns $60,000 annually and contributes $20,000 to their traditional 401(k) account pays income tax on $40,000 for the year.

A traditional 401(k) account’s earnings grow tax-deferred. The money is taxed as regular income when the employee begins receiving disbursements, typically in retirement. Employees who withdraw money under specific circumstances before age 59 ½ might be subject to a 10% early withdrawal penalty.

Traditional 401(k) Required Minimum Distributions

Required minimum distributions (RMDs) are annually required for traditional 401(k) account holders beginning at age 73. Failure to take RMDs can result in an excise tax of 25% on the amount not withdrawn. 

2. Roth 401(k)

Employees with a Roth 401(k) account make after-tax contributions. Employers might make matching contributions, such as 50 cents per dollar of the employee’s contributions, up to 6% of the employee’s salary.

Roth 401(k) Contribution Limits

Employees whose employers offer both traditional and Roth 401(k) plans can set up an account under each plan and make contributions. Although the total contribution limits can change annually, the limits for 2026 are as follows:

• $24,500 for employees under age 50

• $32,500 for employees aged 50 to 59 or 64 and up

• $35,750 for employees aged 60 to 63

Roth 401(k) Tax Implications

Contributions to a Roth 401(k) can be withdrawn tax-free at any time, and the earnings are disbursed tax-free if the account is held for at least five years and the employee reaches age 59 ½. There are no RMDs.

3. SIMPLE 401(k)

A Savings Incentive Match Plan for Employees (SIMPLE) 401(k) plan is designed for companies with 100 employees or fewer. Employers who offer a SIMPLE 401(k) must make a matching contribution of up to 3% of each employee’s pay for those making contributions, or a non-elective contribution of 2% for all eligible employees, even if they don’t participate.

SIMPLE 401(k) Contribution Limits

The contribution limits for a SIMPLE 401(k) can change annually. The limits for 2026 include:

• $17,000 for employees under age 50

• $21,000 for employees aged 50 to 59 or 64 and up

• $22,250 for employees aged 60 to 63

SIMPLE 401(k) Tax Implications

Employee contributions to a SIMPLE 401(k) are tax-deferred. Disbursements are taxed as ordinary income, typically during retirement.

Withdrawing money from a SIMPLE 401(k) before age 59 ½ can result in a 10% early withdrawal penalty. RMDs must be taken starting at age 73.

4. Safe Harbor 401(k)

A safe harbor 401(k) plan allows employees to skip the nondiscrimination tests that most 401(k) plans are subject to. These tests are intended to ensure the plans don’t discriminate in favor of highly compensated employees in terms of employer matches or other benefits.

The money is immediately vested in a safe harbor 401(k) plan, unlike other 401(k) plans that typically require employees to remain for a set number of years before acquiring full ownership of the employer’s contributions. Otherwise, a safe harbor 401(k) is subject to the same rules regarding contributions, early withdrawals, and RMDs as most plans.

Employer Contributions to a Safe Harbor 401(k)

Employers who offer a safe harbor 401(k) must make annual contributions to each eligible employee’s plan, regardless of whether the employee contributes. The contributions can be made in one of three ways:

• Nonelective contribution: The employer contributes an amount equal to 3% of compensation on behalf of each non-highly compensated employee, even if the employee does not contribute.

• Basic match: The employer matches 100% of each non-highly compensated employee’s elective contributions, up to 3% of their compensation, and 50% of the next 2% in compensation. For instance, an employee who earns $50,000 annually would be eligible for a maximum match of $2,000 (100% of their first $1,500 in contributions, plus 50% of their next $1,000 in contributions).

• Enhanced match: The employer can base their match on up to 6% of the employee’s compensation, which is higher than the basic match of 5%.

5. One-Participant 401(k)

A one-participant 401(k) plan is typically known as a solo 401(k), individual 401(k), or self-employed 401(k). This plan is designed for companies with no employees other than the owner and their spouse, if they work in it.

A one-participant 401(k) plan can be either a traditional or a Roth 401(k). The one-participant 401(k) plan is subject to the same rules as a traditional or Roth 401(k) regarding early withdrawals and RMDs.

Because the owner is considered both an employer and employee, they can contribute to a one-participant 401(k) plan in both capacities:

Employee Contributions to a One-Participant 401(k)

As an employee, the owner can contribute up to 100% of their compensation or net self-employment income. The same annual contribution limits for a traditional or Roth 401(k) apply to a one-participant 401(k). The contribution limits for 2026 include the following:

• $24,500 if under age 50

• $32,500 if aged 50 to 59 or 64 and up

• $35,750 if aged 60 to 63

Employer Contributions to a One-Participant 401(k)

As an employer, the owner can make additional, non-elective contributions. The limit depends on the business’s tax structure, such as a self-employed sole proprietor or an S corporation.

As an employer and employee, the owner can contribute up to $72,000 to their one-participant 401(k) plan in 2026, plus an additional $8,000 if they’re age 50 or older, or $11,250 if they’re age 60-63. A spouse who earns income from the business can contribute to a one-participant 401(k), up to the same limits, and is eligible for the same additional employer contribution.

*This information is for educational purposes only.

Which topic would you like to learn about next? Let me know in the comments.