401(k) Calculator

What's the difference between Traditional and Roth 401(k)?

Traditional: Contribute pre-tax (reduce current income), pay taxes on withdrawals in retirement. Roth: Contribute after-tax (no current deduction), withdraw tax-free in retirement. Traditional is better if you expect lower tax bracket in retirement; Roth if you expect higher bracket. Most people use Traditional.

Can I contribute to both 401(k) and IRA?

Yes. You can contribute to a 401(k) and a Traditional or Roth IRA, but Traditional IRA deductibility is limited if you have a 401(k) and high income. Strategy: max out 401(k) first to capture employer match, then contribute to Roth IRA (which has no income limit for contributions).

What happens to my 401(k) if I change jobs?

You have options: (1) Leave it at old employer (if balance over $5k), (2) Roll it to new employer's 401(k), (3) Roll it to an IRA (best option if new employer's 401k has high fees). Avoid cashing out—20% withholding plus 10% penalty if under 59.5 makes this very expensive.

What are Required Minimum Distributions (RMDs)?

At age 73 (as of 2023), you must withdraw a minimum amount annually from Traditional 401(k)s and IRAs. RMD amounts increase with age. This is why Roth conversions matter—Roth accounts have no RMDs, allowing tax-free growth beyond 73.

How much should I contribute to retire comfortably?

Rule of thumb: aim for 15-20% of gross income (including employer match). If that's impossible, save whatever you can—something is infinitely better than nothing. Run scenarios with this calculator: adjust contribution levels until the projected balance seems sufficient for your retirement spending needs.

Can I borrow from my 401(k)?

Most plans allow loans up to $50,000 or 50% of balance, whichever is lower. You repay with interest. However, if you leave your job with an outstanding loan, it becomes immediately taxable. Generally avoid this—it interrupts compound growth during years when missing growth is most costly.

How should I invest my 401(k) contributions?

Common approaches: (1) Target-date fund (automatically shifts from stocks to bonds as you age), (2) 3-fund portfolio (US stocks, international stocks, bonds), (3) 90/10 or 80/20 stock/bond allocation for younger workers. Younger workers should be growth-focused; older workers should be conservative. Avoid money market funds unless near retirement.

What if my employer doesn't offer a 401(k)?

Use a Roth or Traditional IRA instead. 2024 limit is $7,000 annually ($8,000 at 50+). You can also open a Solo 401(k) if self-employed, allowing $69,000+ annual contributions. IRAs have advantages (flexibility, often low fees) but lack employer matching.

The Power of Employer Matching: Free Money Amplified

Employer matching is the single most valuable benefit most workers receive. A 50% match on 6% of salary means your employer gives you $0.50 for every $1.00 you contribute (up to 6% of salary). This is literally a 50% instant return—impossible to beat in any investment. Yet roughly 20% of workers fail to capture their full match, leaving billions in annual free money on the table.

The match compounds: if you earn a 50% match on $5,000 annual contribution, that's $2,500 free money invested for decades. That $2,500 at 7% returns for 35 years becomes $47,000. Multiply that by decades of matching, and employer match becomes a massive wealth component—sometimes larger than investment growth for many workers.

Tax Advantages: Why 401(k)s Supercharge Savings

Traditional 401(k) contributions are pre-tax, reducing your current taxable income. Someone earning $75,000 contributing $10,000 to a 401(k) only reports $65,000 taxable income. If in 25% tax bracket, that's $2,500 in immediate tax savings. This tax savings accelerates wealth building: money that would have gone to taxes instead compounds in your 401(k).

Additionally, 401(k) investment growth is tax-deferred—you don't pay taxes on gains annually like you do in regular brokerage accounts. All gains compound tax-free until retirement withdrawal. This tax deferral is worth tens of thousands to most workers over decades compared to taxable investing.

Catch-Up Contributions: The Age 50 Advantage

At age 50, the IRS allows an additional $7,500 annual catch-up contribution, raising the limit from $23,000 to $30,500. This is specifically designed to help later-life savers accelerate catch-up. Combined with years of hopefully grown salary, a 50-year-old can dramatically accelerate retirement savings in their final working years.

Example: A 45-year-old with modest 401(k) balance ($100k) who increases contributions to maximum at age 50, then maxes out with catch-up contributions ($30,500/year) for 15 years can accumulate $500k-$800k from ages 50-65 alone—creating a real retirement emergency rescue through aggressive catch-up.

Contribution Limits and Planning: Staying Within IRS Rules

2024 contribution limits are $23,000 for employee contributions, plus up to $46,000 total when including employer match and profit-sharing. These limits increase annually with inflation. Planning around limits matters if you have high income and want to maximize retirement savings.

Strategy: If you're high-income, max out your 401(k) ($23,000), then max out a Backdoor Roth IRA ($7,000), then use a Solo 401(k) if self-employed. Some people can save $80,000+ annually in retirement accounts through multi-account strategies. This is where high-income retirement optimization occurs.

Investment Allocation: Age and Risk Tolerance Matter

Young workers (20s-30s) should be heavily invested in stocks—perhaps 90-100% stocks. Stocks are volatile short-term but historically return 10%+ annually over 30+ year periods. Older workers (50s-60s) should increase bonds (30-50% allocation) to reduce volatility near retirement. This balanced approach protects against both growth starvation and retirement withdrawal uncertainty.

Target-date funds handle this automatically: a "2050 target" fund starts aggressive, gradually shifting to bonds as 2050 approaches. For hands-off investors, target-date funds are ideal. For others, understand your risk tolerance and rebalance annually.

Employer Plans and Vesting: Know Your Rights

While your own contributions are always immediately vested (they're your money), employer matching often has vesting schedules. Common schedule: 3-year cliff (0% vested years 0-2, 100% vested year 3) or graded (33% per year over 3 years). Understanding your vesting schedule matters for job change decisions: leaving before vesting completes means losing unvested employer contributions.

Strategy: If job change is planned and you're not fully vested, staying until vesting completes captures significant free money. Conversely, if plan features are terrible, leaving early might be optimal despite forfeiting unvested match.

The 4% Rule and Retirement Planning Integration

The 4% rule estimates sustainable retirement spending: withdraw 4% of your portfolio in year 1 of retirement, then increase withdrawals annually for inflation. This portfolio supposedly lasts 30+ years. Therefore, target a retirement balance of 25x your annual spending: want $50k/year? Need $1.25 million. Use this calculator to project if your 401(k) will hit that target.

Example: If you want $50k annual retirement income from 401(k), need $1.25M balance at retirement. Run this calculator backward: what contribution/return combination gets you to $1.25M? This transforms retirement from abstract goal to concrete savings plan.

Common Mistakes to Avoid

Mistake 1: Not capturing full employer match - Costs hundreds of thousands long-term. Always contribute enough for full match.
Mistake 2: Excessive fees - High expense ratio funds silently drain wealth. Choose low-cost index funds (under 0.15% expense ratio).
Mistake 3: Market-timing withdrawals - Selling during downturns and missing recoveries destroys long-term returns. Stay invested; ignore short-term volatility.
Mistake 4: Early withdrawals - 10% penalty plus taxes makes this devastating. Build emergency fund separately.

Retirement Income Planning: Beyond 401(k)s

401(k)s are one pillar of retirement, not the whole picture. Plan to combine: 401(k)s, Social Security (typically $24k-$46k annually depending on work history), IRAs, taxable investments, and any pensions. Run this 401(k) calculator, then model total retirement income from all sources. Most experts recommend 401(k)s generate 50-60% of retirement income, with other sources filling gaps.

This matters for adequacy assessment: if your 401(k) projects to $800k and Social Security will provide $30k/year ($720k present value), total retirement resources may be sufficient even if 401(k) alone seems low.