401(k) Calculator

Optimize Your Retirement Plan and Maximize Tax-Advantaged Growth

Understanding 401(k) Retirement Plans

A 401(k) is an employer-sponsored retirement plan allowing employees to save for retirement through pre-tax contributions, with employer matching contributions in many cases. These plans are among the most effective retirement savings tools available in the United States, offering tax advantages, employer matching (free money), and compound growth potential that can create substantial retirement savings.

Key 401(k) Features

Tax-Deferred Growth: Contributions reduce your current taxable income, and growth is tax-free until withdrawal in retirement. This means your full contribution amount grows, not just the after-tax portion, significantly accelerating wealth building.

Employer Matching: Many employers match a percentage of employee contributions (commonly 50-100% of the first 3-6% of salary). This is guaranteed free money. Not taking full employer match is leaving free money on the table.

Contribution Limits: For 2025, employees can contribute up to $23,500 annually (or $31,000 if age 50+). These limits increase regularly with inflation.

Investment Options: Most 401(k)s offer diversified investment options (mutual funds, index funds, target-date funds). Your investment choices significantly impact returns, so choose carefully.

Strategic 401(k) Contribution Planning

Minimize Employer Match: First priority should be contributing enough to capture your full employer match. If your employer matches 100% of the first 3%, contribute at least 3% of salary. Not doing this is leaving free money.

Maximize Tax Advantages: Contributing more reduces your current taxable income. Someone in the 24% tax bracket saves $0.24 in taxes for every $1 contributed. A $10,000 contribution saves $2,400 in taxes that year.

Invest the Difference: The tax savings can be invested elsewhere, further accelerating wealth building. Rather than spending tax savings, redirect them to additional retirement or investment accounts.

Adjust as Income Increases: When receiving raises, consider increasing 401(k) contributions. Increasing contributions by 50% of salary increases prevents lifestyle inflation while maximizing retirement savings.

401(k) vs. Roth 401(k) vs. Traditional IRA vs. Roth IRA

Traditional 401(k): Pre-tax contributions reduce current income taxes. Growth is tax-deferred, and withdrawals in retirement are taxed as ordinary income. Best for those expecting lower tax brackets in retirement.

Roth 401(k): Post-tax contributions don't reduce current taxes, but growth and withdrawals are tax-free in retirement. Best for younger workers expecting higher tax brackets later, or those wanting tax-free income in retirement.

Traditional IRA: Similar to traditional 401(k) but with lower contribution limits ($7,000 vs. $23,500 in 2025) and available to anyone with earned income. Provides tax deductions and tax-deferred growth.

Roth IRA: Post-tax contributions, but qualified withdrawals are tax-free. Exceptional for long-term wealth building because decades of growth is completely tax-free. No required minimum distributions.

Projected Retirement Outcomes

Consider Marcus, age 30 earning $80,000. His employer matches 50% of contributions up to 6% of salary ($2,400). If he contributes just enough to capture the match (6% = $4,800/year), his employer adds $2,400. At 7% annual returns, after 35 years his balance reaches approximately $1.1 million.

However, if Marcus contributes the 2025 limit ($23,500/year), his employer contribution remains $2,400. After 35 years at 7% returns, his balance reaches approximately $3.2 million—nearly triple by maximizing contributions and letting compound interest work.

Using the 4% withdrawal rule, Marcus could withdraw $128,000 annually from his $3.2 million balance, providing substantial retirement income beyond Social Security.

Common 401(k) Mistakes to Avoid

  • Not Capturing Full Employer Match: This is leaving free money. Always contribute enough to capture your full employer match.
  • Too Conservative Investment Allocation: Young workers often invest too conservatively. With 30-40 years until retirement, more stock exposure typically generates better returns.
  • High Fee Funds: Some 401(k) plans include expensive mutual funds with high expense ratios. Choose low-cost index funds when available.
  • Early Withdrawals: Withdrawing early triggers a 10% penalty plus income taxes, destroying your tax-advantaged growth. Only withdraw for genuine financial hardship.
  • Not Adjusting for Raises: Many people maintain the same contribution percentage even as salary increases. Automatically increase contributions with raises.
  • Forgetting to Roll Over Upon Job Change: When changing jobs, roll your 401(k) to your new employer's plan or an IRA. Avoid cashing it out and paying taxes/penalties.

Your Information

Investment Details

Projection Results

Annual Employer Match
$0
2025 Contribution Limit
$23,500
Balance at Retirement
$0
Monthly Income at Retirement (4% Rule)
$0
Years 401(k) Will Last
-
RMD at Age 73 (2024 rule)
$0
Key Information
  • Current 2025 limit: $23,500
  • Catch-up (50+): $7,500
  • Age of access: 59½ (penalty-free)
  • RMD age: 73 years old

Balance Growth Projection

Frequently Asked Questions About 401(k) Plans

This depends on interest rates and employer matching. Always capture your full employer match first (it's guaranteed immediate return). For high-interest debt (credit cards >10%), pay those down first. For lower-rate debt, maximizing tax-advantaged 401(k) contributions usually wins. A balanced approach: minimum for full match, pay high-interest debt, then maximize 401(k).
You have several options: Leave it with your old employer (if balance > $5,000), roll it over to your new employer's plan, roll it to a Traditional IRA, or take a distribution (with tax penalties). Rolling to an IRA offers more investment choices and lower fees. Never take a distribution unless absolutely necessary, as you'll owe income tax plus 10% penalty if under 59½.
Required Minimum Distributions (RMDs) force you to start withdrawing from traditional 401(k)s at age 73. If you don't take required amounts, you face severe penalties (25% penalty on the shortfall, reduced to 10% if corrected timely). Roth 401(k)s have no RMDs during your lifetime. Planning for RMDs helps optimize tax efficiency in retirement.
Both have advantages. Traditional 401(k)s provide immediate tax breaks (better for those in high tax brackets now). Roth 401(k)s provide tax-free retirement income (better for younger workers expecting higher future taxes). Many choose a combination: Traditional for the immediate tax deduction, Roth for tax-free growth. Your optimal strategy depends on your current vs. expected retirement tax brackets.
At minimum, contribute enough to capture your full employer match (free money). Ideally, aim to contribute 10-15% of gross income toward retirement savings (including employer match). Max out contributions (currently $23,500/year, $31,000 if 50+) if possible. Start with the match, then increase by 1% each raise until reaching your target percentage.
Generally, you can't withdraw before age 59½ without a 10% penalty plus income tax. Exceptions exist for hardship withdrawals, substantially equal periodic payments (SEPP), or rule 72(t) distributions. Taking early withdrawals severely impacts retirement savings through lost compound growth. Instead, consider loans against your 401(k) if truly needed (you repay yourself with interest).