A 401(k) is the most powerful retirement savings tool available to American workers. This calculator shows how your contributions, employer match, and investment growth combine to build your retirement nest egg.
How This Calculator Works
This calculator projects your 401(k) growth based on:
- Current Balance: Your existing 401(k) savings
- Annual Salary: Your pre-tax income
- Contribution Rate: Percentage of salary you contribute
- Employer Match: Your company's matching formula
- Expected Return: Projected annual investment growth
- Years to Retirement: Time until you access the funds
The Formula Explained
Annual Contribution = Salary × Contribution Percentage
Employer Contribution = Match Rate × Employee Contribution (up to match limit)
Future Value = Current Balance × (1+r)^n + Annual Total × [(1+r)^n - 1] / r
The power comes from tax-deferred compounding over decades.
Step-by-Step Example
David's 401(k) Projection
| Input | Value |
| Current Balance | $50,000 |
| Annual Salary | $75,000 |
| Contribution | 10% ($7,500/year) |
| Employer Match | 50% up to 6% ($2,250/year) |
| Return Rate | 7% |
| Years to Retirement | 25 |
| Projection | Amount |
| Future Value | $918,000 |
| Total Contributions | $243,750 |
| Total Employer Match | $56,250 |
| Investment Gains | $567,000 |
David's $50,000 + $300,000 in contributions grows to $918,000!
Frequently Asked Questions
What is a 401(k) and how does it work?
A 401(k) is an employer-sponsored retirement account where you contribute pre-tax dollars from your paycheck. Your contributions reduce taxable income now, grow tax-free for decades, and are taxed when withdrawn in retirement. Many employers match a portion of your contributions—essentially free money.
How much should I contribute to my 401(k)?
At minimum, contribute enough to get the full employer match (typically 3-6% of salary). Ideally, save 15% of gross income for retirement (including employer match). The 2024 contribution limit is $23,000 ($30,500 if 50+). Max out if you can, especially in high-earning years.
What is an employer match and how does it work?
Employer match is free money added to your account based on your contributions. Common formulas: "50% match up to 6%" means if you contribute 6%, your employer adds 3%. "100% match up to 3%" doubles your first 3% of contributions. Never leave match money on the table—it's an instant 50-100% return.
What's the difference between Traditional and Roth 401(k)?
Traditional 401(k): Contributions reduce today's taxes; withdrawals are taxed in retirement. Best if you expect lower tax rates in retirement. Roth 401(k): Contributions are after-tax; withdrawals are tax-free. Best if you expect higher taxes later or want tax diversification. Many experts recommend a mix.
How should I invest my 401(k)?
For most people, target-date funds are excellent—they automatically adjust from stocks to bonds as you age. If choosing yourself, prioritize low-cost index funds. A simple portfolio: 60-80% total stock market index, 10-20% international stocks, 10-20% bonds (adjust based on age).
What happens to my 401(k) if I leave my job?
You have options: (1) Leave it with former employer (if allowed), (2) Roll over to new employer's 401(k), (3) Roll over to an IRA (most flexibility), (4) Cash out (avoid—you'll pay taxes + 10% penalty before age 59½). Never cash out early—the tax hit is brutal.
When can I withdraw from my 401(k) without penalty?
You can withdraw penalty-free after age 59½. Early withdrawals face income taxes plus a 10% penalty. Exceptions: disability, certain medical expenses, Rule of 55 (leaving job at 55+), or substantially equal periodic payments (SEPP). Required Minimum Distributions (RMDs) begin at age 73.
How do 401(k) fees affect my retirement?
Fees compound like returns—but in reverse. A 1% higher fee can reduce your balance by 20-25% over 30 years. Check your plan's expense ratios; under 0.5% total is good, under 0.25% is excellent. Index funds typically cost 0.03-0.20% while active funds charge 0.5-1.5%.
Key Points to Remember
- Get the full match: It's free money—100% instant return
- Start early: Time and compounding matter more than contribution size
- Increase gradually: Raise contributions 1% annually until maxed
- Stay invested: Don't panic-sell during market downturns
- Review fees: Low-cost index funds beat expensive active funds