401k Calculator

How to Use This 401k Calculator

This 401k calculator helps you project your retirement savings based on your salary, contribution rate, and employer matching. Follow these steps to see your projected 401k balance at retirement:

1. Enter your current age and target retirement age. The calculator will determine how many years of contributions to project.

2. Input your annual salary before taxes. This is used to calculate your contribution amounts.

3. Set your contribution percentage - the portion of your salary you contribute to your 401k each pay period.

4. Enter your employer match percentage. For example, 50% means your employer contributes 50 cents for every dollar you contribute.

5. Set the match limit - the maximum percentage of your salary that the employer will match. For example, 6% means the employer matches contributions up to 6% of your salary.

6. Include your current 401k balance and expected annual investment return rate.

7. Optionally add an expected annual salary increase to account for raises over time.

What is a 401k?

A 401k is an employer-sponsored retirement savings plan that allows employees to save and invest a portion of their paycheck before taxes are taken out. The name comes from section 401(k) of the Internal Revenue Code that established these plans in 1978.

Traditional 401k contributions are made with pre-tax dollars, reducing your taxable income in the year you contribute. Your investments grow tax-deferred, meaning you do not pay taxes on gains until you withdraw the money in retirement. Many employers also offer Roth 401k options, where contributions are made after-tax but withdrawals in retirement are tax-free.

One of the most valuable features of a 401k is the employer match. This is essentially free money added to your retirement savings. If your employer matches 50% of contributions up to 6% of salary, and you earn $75,000, contributing 6% ($4,500) earns you $2,250 in free matching funds each year. Over a 30-year career, this match alone could grow to over $200,000.

401k Contribution Limits (2024)

The IRS sets annual limits on 401k contributions:

• Employee contribution limit: $23,000 for those under 50
• Catch-up contribution: Additional $7,500 for those 50 and older, totaling $30,500
• Total contribution limit (employee + employer): $69,000 (or $76,500 with catch-up)

These limits typically increase each year to account for inflation. Always check current IRS guidelines for the most up-to-date limits.

401k Investment Strategies

Most 401k plans offer a variety of investment options including stock funds, bond funds, target-date funds, and sometimes company stock. Target-date funds automatically adjust their asset allocation as you approach retirement, becoming more conservative over time. Index funds typically offer low costs and broad market exposure.

Consider your risk tolerance and time horizon when selecting investments. Younger investors can generally afford more stock exposure for higher growth potential, while those closer to retirement may prefer a more conservative mix with more bonds.

Tips for Maximizing Your 401k

• Always contribute enough to capture the full employer match - it is free money
• Increase your contribution rate by 1% each year until you reach the maximum
• Take advantage of catch-up contributions once you turn 50
• Choose low-cost index funds when available
• Avoid taking early withdrawals which incur penalties and taxes
• Consider a Roth 401k if you expect higher taxes in retirement
• Roll over old 401k accounts when changing jobs rather than cashing out