Definition
401(k) Plan
An employer-sponsored retirement plan allowing employees to make pre-tax or Roth (after-tax) salary deferrals, often with employer matching contributions. 2026 contribution limits are $24,500 (under age 50), with catch-up contributions of $8,000 (ages 50-59 and 64+) or $11,250 (ages 60-63, "super catch-up"). Employer matching contributions may be subject to vesting schedules. Plans may permit loans (generally up to $50,000 or 50% of vested balance) and hardship withdrawals. Required minimum distributions (RMDs) for Traditional 401(k)s begin at age 73 (age 75 for anyone who reaches age 74 after 2032), and a participant who is not a 5% owner can generally delay them until retiring.
A 45-year-old employee earning $90,000 annually contributes $10,000 to her 401(k) (11% of salary). Her employer matches 50% of contributions up to 6% of salary, adding $2,700 annually ($90,000 × 6% × 50% = $2,700). The employee contribution reduces her current taxable income to $80,000, and all contributions grow tax-deferred until retirement. She can contribute up to $24,500 in 2026 to maximize tax-deferred growth.
Students often confuse 401(k) contribution limits ($24,500/$32,500 for 2026) with IRA limits ($7,500/$8,600 for 2026). Another common error: assuming employer matching contributions count toward the employee contribution limit. They do not. The employee can still contribute $24,500 (2026) regardless of employer match. Vesting is also misunderstood: employee contributions are always 100% vested immediately, but employer match may have a vesting schedule (cliff or graded). Traditional 401(k) vs. Roth 401(k) confusion: Traditional uses pre-tax contributions (tax-deferred), while Roth uses after-tax contributions (tax-free qualified distributions). Finally, loan rules: the maximum loan is the **lesser** of $50,000 or 50% of the vested balance (a plan may still lend up to $10,000 when that exceeds half the balance), not either/or.
How is 401(k) Plan tested on the exam?
- Calculating employer matching contributions based on employee salary and company match formula
- Determining maximum employee contribution limits including catch-up contributions for those age 50+
- Comparing Traditional 401(k) (pre-tax contributions, tax-deferred growth, taxable distributions) versus Roth 401(k) (after-tax contributions, tax-free qualified distributions)
- Understanding vesting schedules for employer matching contributions (cliff vs. graded vesting)
- Identifying when RMDs must begin and calculating required distribution amounts
- Evaluating 401(k) loan limits and repayment requirements
- Distinguishing between employee deferrals (always 100% vested) and employer contributions (subject to vesting)
Regulatory limits
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| 2026 employee contribution limit (under age 50) | $24,500 annually | Pre-tax and/or Roth contributions combined |
| 2026 catch-up contribution (ages 50-59 and 64+) | $8,000 annually | Additional contribution above the $24,500 base limit |
| 2026 super catch-up contribution (ages 60-63) | $11,250 annually | Enhanced catch-up for ages 60-63 under SECURE 2.0 |
| 2026 total contribution limit (employee + employer) | $72,000 annually | Combined limit for employee deferrals, employer match, and profit sharing (excluding catch-up contributions) |
| RMD starting age | Age 73 | SECURE 2.0 Act: age 73 for anyone who reaches 72 after 2022 and 73 before 2033; age 75 for anyone who reaches 74 after 2032 |
| Maximum loan amount | Lesser of $50,000 or 50% of vested balance | Generally must be repaid within 5 years unless for primary residence purchase |
| Early withdrawal penalty | 10% penalty | Applies to distributions before age 59½ without qualifying exception |
| Vesting requirement (employee contributions) | 100% immediate vesting | Employee salary deferrals are always fully vested |
Think "401(k) = Four-Oh-WIN" because you win in four ways: (1) Pre-tax contributions reduce current taxes, (2) Employer match is free money, (3) Tax-deferred growth compounds faster, (4) Higher limits than IRAs ($24.5K vs. $7.5K in 2026). Remember "Fifty Plus Eight": Age 50+ gets an $8,000 catch-up in 2026 ($11,250 at ages 60-63). For loans: "Half or Fifty" = lesser of 50% of vested balance or $50,000.
Practice questions
Test your understanding with the questions below. Pick an answer to reveal the explanation.
Marcus, age 38, earns $120,000 annually and participates in his employer's 401(k) plan. The employer matches 100% of employee contributions up to 3% of salary, then 50% of contributions from 3% to 5% of salary. Marcus currently contributes 4% of his salary ($4,800 annually). He is considering increasing his contribution to maximize the employer match. What is the least Marcus can contribute and still receive the full employer match, and what would the total employer contribution be?
B is correct. To receive the full employer match, Marcus should contribute 5% of his salary ($120,000 × 5% = $6,000). The employer match calculation: 100% match on first 3% = $120,000 × 3% × 100% = $3,600. Then 50% match on next 2% (from 3% to 5%) = $120,000 × 2% × 50% = $1,200. Total employer match = $3,600 + $1,200 = $4,800.
A is incorrect because contributing only 3% would leave $1,200 in employer match on the table. Marcus is currently contributing 4%, so he should increase to 5%, not decrease to 3%. C is incorrect because it assumes a 100% match on the full 5%, but the formula only provides 100% match on the first 3%, then 50% on the next 2%. D is incorrect because contributing more than 5% does not increase the employer match. The match formula caps at 5%, so contributions above 5% receive no additional employer contribution. While Marcus could contribute up to $24,500 (2026 limit), the employer match maxes out at $4,800 when he contributes 5%.
The Series 65 exam frequently tests understanding of tiered employer matching formulas. Advisers must be able to calculate the optimal employee contribution to maximize "free money" from employer matches. This concept appears in retirement planning scenarios and suitability questions. Candidates must understand that employer matching contributions do not count toward the employee contribution limit ($24,500, or $32,500 with the age 50 catch-up, in 2026), allowing employees to receive both their full contribution and the employer match.
What is the maximum employee contribution limit for a 401(k) plan in 2026 for a participant who is 52 years old?
C is correct. For 2026, participants age 50 or older can defer up to $32,500 into their 401(k) plans: the $24,500 elective deferral limit plus an $8,000 catch-up contribution. (Participants who are 60 to 63 in 2026 get an $11,250 catch-up instead, but this participant is 52.)
A ($8,000) is incorrect because this is only the 2026 catch-up amount, not the total. B ($24,500) is the base elective deferral limit, but it leaves out the catch-up available at age 50 and older. D ($72,000) is the 2026 limit on total annual additions to a defined contribution plan from all sources (employee deferrals plus employer contributions), not the employee deferral limit.
The Series 65 exam tests knowledge of annual contribution limits, which change with inflation adjustments. Understanding the difference between employee deferral limits ($24,500, or $32,500 with the age 50 catch-up, in 2026) and the total annual additions limit ($72,000 in 2026, before catch-up contributions) is critical. Questions often test whether candidates know that catch-up contributions begin at age 50, and that the elective deferral limit applies per individual across all plans, not per employer.
Jennifer, age 55, earns $180,000 annually and contributes the maximum employee contribution to her 401(k) plan. Her employer contributes a flat 3% of salary regardless of employee contributions (non-elective contribution). What is the total contribution to Jennifer's 401(k) for 2026 (employee plus employer)?
C is correct. Jennifer is 55, so for 2026 she can defer up to $32,500 ($24,500 base plus the $8,000 age 50 catch-up). Her employer contributes 3% of salary: $180,000 × 3% = $5,400. Total contribution = $32,500 (employee) + $5,400 (employer) = $37,900.
A ($29,900) leaves out the $8,000 catch-up: $24,500 + $5,400 = $29,900. B ($32,500) counts only Jennifer's own deferral and leaves out the employer contribution. D ($80,000) is the most that could go into her account in 2026 from all sources at her age (the $72,000 annual additions limit plus the $8,000 catch-up), not what this formula actually produces.
Calculation questions involving employee contributions, employer matching, and catch-up contributions are common on the Series 65 exam. You must distinguish between what a client contributes, what the employer contributes, and the regulatory maximums. Understanding that employee and employer contributions are separate and cumulative helps evaluate total retirement savings and tax-deferred growth potential. This knowledge is essential for retirement planning recommendations.
All of the following statements about 401(k) plans are accurate except
B is correct (the exception). Employer matching contributions do not count toward the employee contribution limit. The $24,500 limit ($32,500 at age 50 and older in 2026) applies only to employee elective deferrals. Employer contributions count instead toward the much higher limit on total annual additions ($72,000 for 2026, before catch-up contributions). This is why an employee can make the full deferral and still receive employer contributions, up to the total limit.
A is accurate: Traditional 401(k) salary deferrals are made with pre-tax dollars, reducing taxable income in the contribution year. For example, if an employee earning $100,000 contributes $15,000, their W-2 taxable income is reduced to $85,000. C is accurate: participants who are age 50 or older by December 31 of the tax year can contribute an additional $8,000 catch-up contribution in 2026 (on top of the $24,500 base limit). D is accurate: employee contributions are governed by ERISA rules requiring immediate 100% vesting. However, employer matching contributions may be subject to vesting schedules (cliff or graded vesting over up to 6 years).
The Series 65 exam tests the critical distinction between employee contribution limits and total contribution limits. Many candidates incorrectly assume employer match reduces the amount employees can contribute. Understanding that these are separate limits is essential for maximizing retirement savings strategies and properly advising clients. Questions often present scenarios where clients want to know how much they can contribute when their employer provides generous matching, making this a high-priority concept.
An employee has participated in his employer's 401(k) plan for 3 years. He has contributed $60,000 total (employee deferrals), and his employer has contributed $18,000 in matching contributions. The employer uses a 6-year graded vesting schedule (20% vested after 2 years of service, rising 20% a year to 100% after 6 years). The account has had no gains or losses. He is considering taking a 401(k) loan. Which of the following statements are accurate?
1. The employee's own $60,000 in contributions are 100% vested
2. The maximum loan amount he can take is $50,000
3. The maximum loan amount he can take is $33,600 (50% of vested balance)
4. If he leaves the company, any unvested employer contributions will be forfeited
B is correct. Statements 1, 3, and 4 are accurate.
Statement 1 is true: Employee salary deferrals are always 100% vested immediately under ERISA requirements. The employee contributed $60,000 of his own money, which is fully his regardless of when he leaves the company.
Statement 2 is false: $50,000 is the ceiling, but the maximum loan is the lesser of $50,000 or half of the vested balance (a plan may lend up to $10,000 even when that exceeds half). His vested balance is $67,200, so the maximum loan is $33,600, not $50,000.
Statement 3 is true: under the 2-to-6-year graded schedule he is 40% vested in employer contributions after 3 years, so $7,200 of the $18,000 match is vested. His vested balance is $60,000 + $7,200 = $67,200, and 50% of $67,200 = $33,600, which is less than $50,000.
Statement 4 is true: the remaining $10,800 (60%) of employer contributions is unvested and would be forfeited if he left the company now.
The Series 65 exam tests complete understanding of 401(k) plan mechanics, including vesting schedules, loan limits, and the interaction between these rules. You must understand that employee contributions are always fully vested, while employer contributions may be subject to vesting schedules. The loan limit calculation (lesser of $50,000 or 50% of vested balance) is frequently tested, and many candidates incorrectly assume the limit is always $50,000. Understanding forfeitures of unvested amounts is critical for advising clients considering job changes.
What concepts relate to 401(k) Plan?
This term is part of this cluster :
Where does 401(k) Plan appear on the Series 65 exam?
This term is tested in the following Series 65 exam topics: