A 401(k) is a popular employer-sponsored retirement savings plan that allows employees to contribute a portion of their pre-tax salary to an investment account. These contributions, along with any employer matching funds, grow tax-deferred until retirement, offering a powerful way to build wealth for your future.
How the Calculator Works
This 401(k) Contribution Calculator helps you estimate your potential retirement savings based on your current financial situation and contribution strategy. Here's a breakdown of the inputs and what they mean:
Current Annual Salary: Your gross annual income before taxes. This is used to determine your contribution amounts.
Employee Contribution (% of Salary): The percentage of your salary you plan to contribute to your 401(k) each year.
Employer Match (% of Employee Contribution): Many employers offer to match a percentage of your contributions, up to a certain limit. For example, "50% of the first 6%" means for every dollar you contribute up to 6% of your salary, your employer adds 50 cents.
Employer Match Cap (% of Salary): This is the maximum percentage of your salary that your employer will consider for their match. If your employer matches "50% of the first 6%," then 6% is the cap.
Current Age & Desired Retirement Age: These inputs determine the number of years you have left to contribute and for your investments to grow.
Estimated Annual Investment Growth Rate (%): This is the average annual return you expect your 401(k) investments to generate. A common historical average for diversified portfolios is 6-8%, but this is an estimate and actual returns may vary.
Current 401(k) Balance: Any existing funds you have already accumulated in your 401(k) account.
IRS Employee Contribution Limit: The maximum amount an employee can contribute to a 401(k) in a given year, as set by the IRS. This limit can change annually. For 2024, it's $23,000.
Catch-up Contribution (Age 50+): If you are age 50 or older, the IRS allows you to contribute an additional amount beyond the standard limit. For 2024, this is $7,500.
Understanding Your Results
Employee Annual Contribution: The total dollar amount you contribute to your 401(k) each year, capped by the IRS limit (plus catch-up if applicable).
Employer Annual Match: The dollar amount your employer contributes to your 401(k) based on your contributions and their matching policy.
Total Annual Contribution: The sum of your employee contribution and your employer's match.
Years Until Retirement: The duration over which your investments will grow.
Projected 401(k) Balance at Retirement: An estimate of how much your 401(k) could be worth when you reach your desired retirement age, assuming consistent contributions and the specified growth rate.
Why Maximize Your 401(k)?
Contributing to your 401(k), especially up to the employer match, is often considered one of the smartest financial moves you can make. The employer match is essentially "free money" that significantly boosts your retirement savings. The tax-deferred growth and potential for compounding returns over decades can lead to a substantial nest egg, providing financial security in your golden years.
Remember, this calculator provides estimates. Actual returns and future balances can vary based on market performance, changes in contribution limits, and your personal financial decisions. It's always wise to consult with a financial advisor for personalized guidance.