401k Calculator

401k Retirement Calculator

Estimate how much your 401k could grow by retirement age and see how different contribution rates, employer matches, and investment returns affect your savings.

Your Information

Current Age

Retirement Age

Current 401k Balance ($)

Annual Salary ($)

Contribution Details

Annual Contribution Rate (%)

Employer Match Rate (%)

Employer Match Limit (%)

Expected Annual Return (%)

Your 401k Projection Results

Summary

Retirement Age: 65
Years Until Retirement: 35
Starting Balance: $25,000
Total Contributions: $126,000
Employer Contributions: $63,000
Total Interest Earned: $420,723
Final Balance at Retirement: $634,723

Contribution Breakdown

Balance Growth Over Time

This projection is based on the information you provided and assumes consistent contributions and returns over time. Actual results may vary due to market fluctuations, changes in contributions, or other factors. It's recommended to review your retirement plan periodically with a financial advisor.

Understanding 401k Retirement Plans

Learn about 401k retirement plans, how they work, and how to maximize your retirement savings with this tax-advantaged investment vehicle.

What is a 401k Plan?

A 401k is a retirement savings plan sponsored by an employer that allows workers to save and invest a portion of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account, typically after retirement.

Key Features of 401k Plans:

Tax Advantages: Contributions are made pre-tax, reducing your taxable income for the year.
Employer Matching: Many employers match a portion of your contributions, essentially providing free money for your retirement.
Investment Options: 401k plans typically offer a variety of investment options, including mutual funds, index funds, and target-date funds.
Contribution Limits: The IRS sets annual contribution limits. For 2023, the limit is $22,500, with an additional $7,500 catch-up contribution allowed for those 50 and older.
Vesting: Employer contributions may be subject to a vesting schedule, meaning you must work for the company for a certain period to fully own those contributions.

Types of 401k Plans:

Traditional 401k: Contributions are made pre-tax, and withdrawals in retirement are taxed as ordinary income.
Roth 401k: Contributions are made after-tax, but withdrawals in retirement are tax-free as long as certain conditions are met.
Solo 401k: Designed for self-employed individuals with no employees (other than a spouse).

The Power of Compound Interest

One of the biggest advantages of a 401k is the power of compound interest. When your investments generate earnings, those earnings are reinvested and can generate their own earnings. Over time, this compounding effect can significantly boost your retirement savings.

Example: If you invest $5,000 per year starting at age 25 with an average annual return of 7%, by age 65 you would have approximately $1,068,048. If you wait until age 35 to start investing the same amount, you would have only $505,365 by age 65 – a difference of over $560,000!

This demonstrates the importance of starting early and contributing consistently to your 401k plan. Even small increases in your contribution rate can make a significant difference in your retirement savings due to the power of compound interest over time.

Making the Most of Your 401k

Tips to Maximize Your 401k Benefits:

Contribute at least enough to get the full employer match. Not taking advantage of your employer match is essentially leaving free money on the table.
Increase your contribution rate over time. Try to increase your contribution percentage each year, especially when you receive a raise or bonus.
Choose appropriate investments based on your age and risk tolerance. Younger investors can typically afford to take on more risk for potentially higher returns, while those closer to retirement may want to focus on more conservative investments.
Regularly review and rebalance your portfolio. As markets fluctuate, your asset allocation may drift from your target. Periodic rebalancing helps maintain your desired risk level.
Avoid early withdrawals if possible. Withdrawals before age 59½ typically incur a 10% penalty in addition to income taxes, significantly reducing your retirement savings.
Consider catch-up contributions if you're over 50. The IRS allows additional contributions for those 50 and older to help boost retirement savings in the final years before retirement.

Frequently Asked Questions

When can I withdraw money from my 401k?

You can typically start withdrawing money from your 401k without penalties at age 59½. Withdrawals before that age may incur a 10% early withdrawal penalty unless you qualify for certain exceptions, such as financial hardship or disability.

What happens to my 401k if I change jobs?

You have several options when changing jobs: leave the money in your former employer's plan (if allowed), roll it over into your new employer's plan, roll it over into an Individual Retirement Account (IRA), or cash it out (not recommended due to taxes and potential penalties).

How much should I contribute to my 401k?

Financial experts often recommend contributing at least enough to get your full employer match, and ideally 10-15% of your gross income. However, the right amount depends on your age, income, retirement goals, and other factors. Use the calculator above to help determine an appropriate contribution amount for your situation.

Can I borrow money from my 401k?

Many 401k plans allow participants to borrow against their balance, typically up to 50% of your vested account balance or $50,000, whichever is less. However, borrowing from your 401k has drawbacks, including missed investment growth and potential tax consequences if you leave your job before repaying the loan.

What are Required Minimum Distributions (RMDs)?

RMDs are the minimum amounts you must withdraw from your 401k (and other retirement accounts) each year, generally starting at age 73. The amount is based on your account balance and life expectancy. Failing to take RMDs can result in significant tax penalties.

Retirement Planning