401K Calculator
Understanding Your 401(k) Calculator
What is a 401(k)?
A 401(k) is an employer-sponsored retirement savings plan that allows employees to save and invest for retirement on a tax-deferred basis. Named after the section of the Internal Revenue Code that created it, the 401(k) has become one of the most popular retirement savings vehicles in the United States.
How 401(k) Plans Work
The 401(k) calculator projects the growth of your retirement savings based on:
- Your current 401(k) balance
- Regular employee contributions
- Employer matching contributions (if applicable)
- Expected investment returns
- Time until retirement
The Mathematical Formula
The 401(k) growth calculation uses compound interest formulas:
For current balance growth:
FV₁ = PV(1 + r)ⁿ
For annual contributions:
FV₂ = PMT × [(1 + r)ⁿ - 1] / r
Total 401(k) Value = FV₁ + FV₂
Where:
PV = Present value (current balance)
PMT = Annual contribution
r = Expected annual return (as decimal)
n = Years to retirement
This formula accounts for compound growth on both your existing balance and future contributions.
Key 401(k) Features
Tax Advantages
Traditional 401(k) contributions are made with pre-tax dollars, reducing your current taxable income.
Employer Matching
Many employers match a percentage of your contributions, providing "free money" toward retirement.
Contribution Limits
Annual contribution limits are set by the IRS, with additional catch-up contributions for those 50 and older.
Investment Options
Plans typically offer various investment options including mutual funds, index funds, and target-date funds.
2024 401(k) Contribution Limits
- Employee Contribution Limit: $23,000
- Catch-up Contribution (Age 50+): Additional $7,500
- Total Annual Limit (Employee + Employer): $69,000
- Total with Catch-up: $76,500
Types of 401(k) Plans
Traditional 401(k)
- Pre-tax contributions
- Tax-deferred growth
- Taxed upon withdrawal
- Required minimum distributions at 73
Roth 401(k)
- After-tax contributions
- Tax-free growth
- Tax-free qualified withdrawals
- No required minimum distributions
401(k) Withdrawal Rules
- Early withdrawal penalty of 10% before age 59½ (with exceptions)
- Required minimum distributions begin at age 73
- Hardship withdrawals may be available for specific circumstances
- Loans may be available from some plans (up to 50% of balance or $50,000)
- Rollover options when changing jobs
Tips for Maximizing Your 401(k)
- Contribute enough to get full employer match
- Increase contributions with salary raises
- Take advantage of catch-up contributions if 50 or older
- Review and rebalance investments regularly
- Consider both traditional and Roth options
- Avoid early withdrawals to preserve growth
- Understand your plan's investment options and fees