401(k) Calculator

A 401(k) is an employer-sponsored retirement savings plan that offers significant tax advantages. Named after section 401(k) of the Internal Revenue Code, it's one of the most powerful wealth-building tools available to American workers.

Key 401(k) features:

• Tax-advantaged growth: Investments grow tax-deferred or tax-free
• Employer matching: Free money from your employer
• High contribution limits: Much higher than IRAs
• Automatic payroll deductions: Easy saving
• Creditor protection: Protected from bankruptcy

Types of 401(k) accounts:

• Traditional 401(k): Pre-tax contributions, taxed on withdrawal
• Roth 401(k): After-tax contributions, tax-free withdrawals
• Safe Harbor 401(k): Automatic employer contributions
• Solo 401(k): For self-employed individuals

Employee contribution limits (2024):

• Under age 50: $23,000 per year
• Age 50 and over: $30,500 per year (includes $7,500 catch-up)

Total contribution limit (employee + employer):

• Under age 50: $69,000 per year
• Age 50 and over: $76,500 per year

Common employer match formulas:

• 100% match on first 3%, 50% on next 2% (effective 4%)
• 50% match on first 6% (effective 3%)
• Dollar-for-dollar match up to 4% (effective 4%)
• No match (still worth contributing for tax benefits)

Vesting schedules: Many employers require years of service before you own matched funds fully. Common schedules are 3-year cliff vesting or 6-year graded vesting.

Traditional 401(k):

• Contributions reduce taxable income today
• Pay taxes on withdrawals in retirement
• Required Minimum Distributions (RMDs) at age 73
• Best if you expect lower tax bracket in retirement

Roth 401(k):

• Contributions made with after-tax dollars
• Withdrawals are 100% tax-free in retirement
• No RMDs starting 2024 (SECURE 2.0 Act)
• Best if you expect same or higher tax bracket in retirement

When to choose Traditional:

• Currently in high tax bracket (32%+)
• Expect lower income in retirement
• Need tax deduction to qualify for other benefits

When to choose Roth:

• Currently in lower tax bracket (22% or less)
• Young with many years of growth ahead
• Expect higher taxes in retirement
• Want tax-free income flexibility in retirement

Consider both: Many experts recommend splitting contributions for tax diversification.

Our 401(k) calculator projects your retirement savings growth:

1. Enter Current Situation:
   • Current age and retirement age
   • Current 401(k) balance
   • Annual salary
2. Set Contribution Details:
   • Your contribution percentage
   • Employer match formula
3. Set Investment Return:
   • Expected annual return (7-10% historically)

Results include:

• Projected retirement balance
• Total contributions (yours + employer)
• Investment growth
• Monthly retirement income estimate (4% rule)

Why employer match matters:

Employer match is essentially free money—a guaranteed 50-100% return on your contribution. Not getting the full match is leaving money on the table.

Example of match value:

• Salary: $75,000
• Match: 100% of first 4%
• Your contribution: $3,000 (4%)
• Employer match: $3,000 (free!)
• Over 30 years at 7%: $580,000 from match alone

Strategies:

• At minimum, contribute enough to get full match
• Then consider Roth IRA for additional retirement savings
• After maxing IRA, return to max 401(k)
• Consider contribution order: Match → HSA → Roth IRA → 401(k) max

Common investment options:

• Target-date funds: Automatically adjust based on retirement year
• Index funds: Low-cost market tracking (S&P 500, Total Market)
• Actively managed funds: Higher fees, try to beat market
• Bond funds: Lower risk, lower return
• Company stock: Use sparingly (concentration risk)

Age-based allocation rule of thumb:

• Stocks percentage = 110 - your age
• Example: Age 30 → 80% stocks, 20% bonds
• Age 50 → 60% stocks, 40% bonds
• Adjust based on risk tolerance

Keep costs low:

• Check expense ratios (aim for under 0.5%)
• Index funds typically have lowest fees
• 1% annual fee difference costs hundreds of thousands over career

Standard withdrawal rules:

• Penalty-free withdrawals at age 59½
• 10% early withdrawal penalty before 59½
• Plus ordinary income tax on Traditional withdrawals
• RMDs begin at age 73 (Traditional only)

Exceptions to 10% penalty:

• Age 55+ and separated from employer (Rule of 55)
• Substantially equal periodic payments (72(t))
• Disability
• Medical expenses exceeding 7.5% of AGI
• IRS levy
• Qualified domestic relations order (divorce)

401(k) loans:

• Borrow up to 50% of balance or $50,000 (whichever is less)
• Must repay within 5 years (15 for home purchase)
• If you leave job, often due within 60 days
• Generally not recommended—disrupts compounding