A retention knob for use with a tool holder that is less prone to distorting a tapered tool holder surface, especially if it is over-tightened. The retention knob includes a knob head, a flange engageable with an end of a tool holder shank, a pilot segment receivable by the counter bore defined by said tool holder shank and a threaded segment spaced from said flange by an undercut segment. The threaded segment is configured so that it has a length that is substantially the minimum length required to achieve maximum thread holding strength. The undercut segment is configured to space the threaded segment from its head so that a distal end of the threaded segment is substantially near the bottom of the tapered bore forming part of the tool holder.