401(k) Calculator

What is a 401k?

There was a change in regulation in 1978 that affects retirement plans. The United States Congress passed a part of the Internal Revenue Code known as section 401(k) and the name 401K plans has stuck ever since.

401K plans have tax benefits and are classified as Defined Contribution plans. This means that the amount both you and your employer put into the plan is set at a certain amount. You are able to contribute a set amount of your monthly salary every month. Your employer can limit the amount that this is. If you want the most from your retirement then you should try to put in as much as you can every month but be aware that there are annual contribution limits defined by the IRS. This amount is usually increased in line with inflation on an annual basis.

The 401K limits for 2021 and 2022 set by the IRS are $19,500 and $20,500, respectively. The contribution limit for 2024 is $23,000 ($22,500 for 2023). You may find that your employer matches or makes part of your contributions, as many do. The contribution from the employer does not have a limit except for the fact that it must not be above the lesser of either:

• 100% of the employee's pay,
• $61,000 in 2022, $66,000 in 2023 or $69,000 in 2024.

The sums of money put into the plan by both the employee and the employer are placed there free of tax and there is no tax burden while the money is in the account. So it has the effect of lowering the amount of tax paid on earnings as they pass into the 401K account before tax is deducted. It is a good way to save for retirement as you cannot usually touch this money without penalty until you retire or become disabled or your dependents can gain access if you die.

401(k) Formula

The 401(k) Retirement Calculator uses the following basic formula:

Total Account Value(TAV) = CB * (1 + rate/100/12)^(n*12) + (YC + EC) * ((1 + rate/100/12)^(n*12) - 1) / (rate/100/12) * (1 + rate/100/12)

• TAV: Total Account Value
• CB: Current 401k Balance
• rate: Annual Rate of Return
• n: Age of Retirement − Current Age
• YC: Your Monthly 401(k) Contribution
• EC: Your Employer's Monthly 401(k) Adding

Calculator Definitions

Annual salary ($)

The sum of your annual pay before any deductions such as tax.

Annual Salary Increase (%)

How much you expect your salary to increase by on an annual basis in percentage terms.

Annual Rate of Return (%)

This is how you expect your investments to perform. Estimate the way that you expect your 401K investments to grow on an annual basis in percentage terms. The calculator assumes that you deposit every month and that your return is compounded.

Current Age (years)

How old you are now.

Age of Retirement (years)

When you expect to retire.

Current 401k Balance ($)

What you already have saved in a 401K plan. If you have not started to save in a 401K plan then enter zero in this field.

Contribution to 401k (%)

What proportion of your salary you will be saving into your 401K, stated as a percentage of your salary.

Employer Match (%)

This is how much your employer will match your contributions. Mark this as the percentage that your employer will match what you pay in.

For example if you pay $250 and your employer will match this with $125 then enter 50% here.

Employer Max Contribution (%)

State the maximum contribution that your employer will go to. It may state in your terms and conditions that they will give a "50% match up to 8% of your salary".

This simply means that they will go no further than half of what you pay in up to 8% of your salary, so in effect they will contribute a maximum of 4% of your annual salary.