What is a 401(k), and how does US retirement saving work?
The US has no single compulsory workplace pension like UK auto-enrolment. Instead, most savings come from a 401(k) (a workplace retirement plan you choose to pay into, often with an employer “match”), individual accounts called IRAs, and the state pension, Social Security.
In 30 seconds
- In 2026 you can put up to $24,500 of your own pay into a 401(k), plus catch-up amounts from age 50. Employer matches come on top
- Employer money can take up to 3 years (cliff) or 6 years (graded) to become fully yours: check the vesting schedule before you change jobs
- Social Security needs 40 credits (about 10 years), but the US–UK agreement can count UK years. ISAs and UK funds get no tax shelter in the US
How a 401(k) works
A 401(k) is a workplace plan you join by choosing a percentage of your pay to put in. Many employers add a “match”, for example 50 cents for every dollar you save up to 6% of pay. The money is invested in funds you pick from the plan’s menu, often including a “target date” fund that gets more cautious as retirement approaches.
- Traditional (pre-tax): your contribution comes out before federal income tax, and you pay tax when you take it out in retirement
- Roth: you pay tax now, and qualifying withdrawals in retirement are tax-free
- Many employers enrol new staff automatically. In Vanguard’s 2026 report, 61% of plans did, and most defaulted people in at 4% of pay or more
- Read the match formula in your job offer: an unclaimed match is pay you leave on the table
The 2026 limits
| Limit | 2026 | About |
|---|---|---|
| Your own 401(k) contributions (traditional and Roth together) | $24,500 | £18,150 |
| Extra catch-up, age 50 or over | $8,000 | £5,930 |
| Extra catch-up, age 60 to 63 (instead of $8,000) | $11,250 | £8,330 |
| IRA contributions | $7,500 | £5,560 |
| Extra IRA catch-up, age 50 or over | $1,100 | £815 |
New in 2026: if you earned more than $150,000 in Social Security wages from your employer in 2025, any catch-up contributions must go in as Roth. Employers with no Roth option can’t offer you catch-up contributions at all. Final IRS rules apply from 2027, with a good-faith standard during 2026.
Vesting: when the employer’s money is yours
Your own contributions are always 100% yours. The employer’s match may “vest” (become yours) over time. The slowest schedules the law allows are:
| Years of service | 3-year cliff | 6-year graded |
|---|---|---|
| Under 2 | 0% | 0% |
| 2 | 0% | 20% |
| 3 | 100% | 40% |
| 4 | 100% | 60% |
| 5 | 100% | 80% |
| 6 | 100% | 100% |
Plans can vest faster, and many vest immediately. If you might leave the US within a few years, check the schedule: unvested money stays with the employer.
IRAs
An IRA (Individual Retirement Account) is a retirement account you open yourself at a bank or brokerage. You need earned income to pay in.
- Roth IRA: in 2026 you can’t pay in directly once your income passes $153,000 to $168,000 (single) or $242,000 to $252,000 (married filing jointly)
- Traditional IRA: you can always pay in, but if you have a workplace plan the tax deduction phases out between $81,000 and $91,000 (single) or $129,000 and $149,000 (married filing jointly)
- Many people use an IRA to collect old 401(k)s after changing jobs
Getting money out
Money taken out before age 59½ is normally taxed as income plus a 10% additional tax, with some exceptions (for example leaving your employer in or after the year you turn 55). Required minimum distributions start at 73 for many people now retiring. What to do with a 401(k) if you leave the US: Closing down your US life.
Social Security: the US state pension
Social Security tax (6.2% of pay up to $184,500 in 2026) and Medicare tax (1.45% on all pay) come out of every pay cheque, and your employer pays the same again. You earn one credit for every $1,890 of earnings in 2026, up to 4 a year, and need 40 credits for a retirement benefit. Full retirement age is 67 for anyone born in 1960 or later. You can claim from 62, but the benefit is cut by up to 30% for good.
The US–UK agreement
The two countries have a “totalization” (totalisation) agreement on social security. It does two things:
- No double contributions: if a UK employer sends you to the US for a limited period (typically up to 5 years), you can stay in UK National Insurance and skip US Social Security tax. Your employer needs a certificate of coverage before the assignment starts
- Combined records: if you don’t have 40 US credits, the Social Security Administration can count UK National Insurance years to help you qualify for a partial US benefit, and the UK can do the same for the State Pension
Your UK State Pension is separate. See UK pensions and moving to the USA for voluntary National Insurance and transfers.
What to do next
- Join your 401(k) and contribute at least enough to get the full match
- Check your plan’s vesting schedule and your Social Security record once you have an SSN
- Ask a US–UK tax adviser about your ISAs and UK pension before your first US tax year
Keep going
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
- PSCA: Roth and super catch-up thresholds increase for 2026 (Nov 2025)
- CAPTRUST: IRS releases SECURE 2.0 final Roth catch-up regulations
- IRS: Issue snapshot, vesting schedules for matching contributions
- IRS: Tax rules on early withdrawals from retirement plans
- Vanguard: How America Saves 2026
- SSA: Automatic adjustments (2026 contribution and benefit base)
- SSA: Quarter of coverage
- SSA: Social Security credits
- Maximize My Social Security: Full retirement age by birth year
- SSA: US–UK Social Security agreement
- IRS: Totalization agreements
- Taxes for Expats: The US–UK totalization agreement, 2026 guide
- The Tax Adviser (AICPA): Foreign pension plans and the US–UK tax treaty (May 2020)
- Taxes for Expats: UK ISA reporting for US taxpayers