You can contribute from 1 percent to 75 percent of your regular pay on a before-tax, traditional after-tax or Roth 401(k) basis, or any combination of the three, subject to certain IRS limits. You are always 100 percent vested in your own contributions. This means the money is yours and you can take it with you when you leave the company.

  • Before-tax contributions reduce your current taxable income. You pay no federal income tax and, in most cases, no state or local income taxes on the amount you contribute and any associated earnings until they are distributed.
  • Traditional after-tax contributions do not reduce your current taxable income, but they will not be taxed when they are distributed to you in the future. The earnings associated with traditional after-tax contributions, however, will be taxable when distributed.
  • Roth 401(k) contributions are like traditional after-tax contributions. But the earnings on the contributions are not taxable when distributed, as long as you are at least age 59½ and have maintained the Roth 401(k) account for at least five years at the time of distribution.

Keep in mind that there are limits on the combined total of before-tax and Roth 401(k) contributions during a given year, including any you make to another employer’s plan. The IRS also limits the combined before-tax, traditional after-tax, Roth and company contributions to the ESIP each year. View the IRS limits.