No federal severance requirement
In Korea, anyone who works at least a year is entitled by law to severance pay or a retirement pension. US federal law does not require employers to pay severance at all, and because most employment is at-will, there is generally no required notice period either. You usually receive severance only if company policy, an employment contract or a separation agreement (usually in exchange for waiving legal claims) provides it, and it is taxed like regular wages, with income tax and FICA (federal withholding is usually a flat 22%). A few states do require it in some cases: Maine, for example, requires one week’s pay per year of service for employees with at least three years when a site with 100 or more workers closes or has a mass layoff.
One exception is the WARN Act, which requires employers with 100 or more workers to give 60 days’ notice of a plant closing or mass layoff. Some states, such as New York (90 days) and California, have stricter rules. After you leave, COBRA usually lets you keep your employer’s health plan for up to 18 months, but you pay the full premium plus a 2% administrative fee.
401(k) plans, employer match and vesting
A 401(k) is a retirement savings plan set up by your employer. You contribute part of each paycheck (elective deferrals) and get a tax break, and you choose the investments, usually from a menu of funds. Nonprofits and schools offer 403(b) plans, state and local governments offer 457(b) plans, and federal employees have the Thrift Savings Plan (TSP).
Many employers add a match. With a “50% match on up to 6% of pay,” for example, contributing 6% gets you another 3% from your employer. You often have to contribute at least a certain percentage to receive the full match.
Your own contributions are always 100% yours, but employer contributions may follow a vesting schedule that requires you to stay for a period of time. The longest schedules the law allows are three-year cliff vesting (100% after three years) and six-year graded vesting (20% after year two, then 20% more each year). Under SECURE 2.0, most 401(k) plans set up after December 29, 2022 must, starting in 2025, automatically enroll new employees at 3–10% of pay (small and new businesses are exempt).
2026 contribution limits
Starting in 2026, if your FICA wages from the employer exceeded $150,000 (indexed) in the prior year, your 401(k) catch-up contributions must go in as Roth (after-tax) contributions under SECURE 2.0. The final regulations apply from 2027, and plans follow a reasonable, good-faith interpretation in 2026. If your plan has no Roth option, you cannot make catch-up contributions.
| Item | 2026 limit | Notes |
|---|---|---|
| Employee deferrals: 401(k), 403(b), 457(b), TSP | $24,500 | Traditional and Roth combined |
| Catch-up, age 50+ | +$8,000 | $32,500 total |
| Catch-up, ages 60–63 | +$11,250 | Replaces the age-50 catch-up; $35,750 total |
| Total including employer money (415(c)) | $72,000 | Excluding catch-ups |
| IRA (traditional and Roth combined) | $7,500 | +$1,100 at 50+, for $8,600 |
| Roth IRA income phase-out (modified AGI) | Single $153,000–$168,000 / married filing jointly $242,000–$252,000 | The limit shrinks within the range; no direct contributions above it |
Source: IRS IR-2025-111 (Notice 2025-67). Ages 60–63 are measured as of the end of the year.
Traditional vs. Roth
Which one comes out ahead on taxes depends on your marginal rate now versus your expected rate in retirement. If your rate is high now and likely to be lower later, traditional tends to win; if the reverse, Roth does. No one can know future tax rates for certain, which is why many people split contributions between the two.
An IRA is an account you open yourself at a financial institution, independent of your employer. Anyone with earned income can contribute to a traditional IRA, but if you are covered by a workplace plan and your income is high, the deduction shrinks. You cannot contribute directly to a Roth IRA above the income limits. When you change jobs, you can roll your 401(k) balance into an IRA or your new employer’s plan.
| Feature | Traditional | Roth |
|---|---|---|
| Going in | Pre-tax; lowers this year’s taxable income | After-tax; no tax break this year |
| While it grows | Tax-deferred | Tax-free |
| Coming out | Contributions and earnings taxed as ordinary income | Tax-free after age 59½ once five years have passed since your first contribution |
| Required minimum distributions | Yes | None during your lifetime for Roth 401(k)s or Roth IRAs |
When you can take money out: 59½ and RMDs
- Withdrawals before 59½: Generally subject to a 10% additional tax on top of income tax. Exceptions include 401(k) withdrawals after leaving that employer in or after the year you turn 55 (the Rule of 55), disability, certain medical expenses, and a birth or adoption (up to $5,000).
- 401(k) loans: If your plan allows it, you can borrow up to 50% of your vested balance, to a maximum of $50,000, usually repaid within five years. If you leave your job and don’t repay by the deadline, the outstanding balance can be treated as a taxable distribution.
- Required minimum distributions (RMDs): From traditional 401(k)s and IRAs, you must withdraw a minimum amount each year starting at 73 if you were born 1951–1959, or at 75 if you were born in 1960 or later. Missing one triggers an excise tax of 25% of the shortfall (10% if corrected in time, generally within two years).
Social Security claiming ages: 62, FRA and 70
The age at which you start sets your monthly benefit for life. Claiming early means more years of checks; waiting means bigger checks. Your health, other income, and spousal and survivor benefits all belong in the decision.
If you claim before FRA and keep working, part of your benefit is withheld when your earnings exceed $24,480 in 2026 ($65,160 in the year you reach FRA), and your benefit is recalculated after FRA. In October 2026, SSA announced a 3.6% cost-of-living adjustment (COLA) for 2027.
| Start benefits at | For people born in 1960 or later | Monthly benefit (FRA amount = 100%) |
|---|---|---|
| 62 (earliest) | Five years before FRA | About 70% (a permanent 30% reduction) |
| 67 (full retirement age, FRA) | FRA for those born in 1960 or later | 100% |
| 70 (no further increase after this) | Three years after FRA | About 124% (8% more per year of delay) |
FAQ
What happens to my 401(k) if I move back to Korea?
You can leave it where it is or roll it into an IRA and keep it invested. Cashing out before 59½ triggers income tax plus the 10% additional tax; for nonresidents, the withholding rate may depend on the tax treaty, and you may also have reporting obligations under Korean tax law (to be confirmed). It is safest to check with tax professionals in both countries.
When does my employer match become mine?
Check the vesting schedule in your plan’s Summary Plan Description. If you leave before you are vested, you forfeit the unvested part of the match; your own contributions and their earnings stay yours.
Is severance pay taxed?
Yes. Severance is treated as wages and is subject to federal and state income tax plus Social Security and Medicare, as is any payout for unused vacation. Unemployment benefits are also subject to federal income tax.
What can self-employed people use?
If you work alone, a Solo 401(k) ($24,500 as the employee plus an employer contribution, up to $72,000 in total) or a SEP IRA; small businesses can also use a SIMPLE IRA.
Basis and sources
- IRS IR-2025-111 — 2026 401(k) and IRA limits
- IRS — 401(k) contribution limits
- IRS — Catch-up contributions
- IRS — Vesting
- IRS — Roth IRAs
- IRS — Exceptions to tax on early distributions
- IRS — Required minimum distributions FAQs
- U.S. Department of Labor — WARN Act
- U.S. Department of Labor — Severance Pay
- U.S. Department of Labor — COBRA
- SSA — Benefit reduction for early retirement
- SSA — 2027 COLA Fact Sheet (earnings test and COLA)