401(k) Calculator

What Is a 401(k) Plan?

A 401(k) is an employer-sponsored defined-contribution retirement plan named after Section 401(k) of the Internal Revenue Code. It allows employees to save and invest a portion of their paycheck before taxes are taken out. Taxes are paid when the money is withdrawn from the account in retirement.

The 401(k) is one of the most common and powerful retirement savings vehicles in the United States, largely because of the tax advantages and employer matching contributions it offers.

How Does Employer Matching Work?

Many employers offer to match a portion of your 401(k) contributions. A common structure is a 50% match on contributions up to 6% of your salary. Here is how it works:

• If you earn $75,000 and contribute 6% ($4,500), your employer adds 50% of that ($2,250) — giving you $6,750 in total annual contributions.
• If you contribute only 3% ($2,250), your employer matches 50% ($1,125) — meaning you leave $1,125 of free money on the table.
• Employer match does not count toward the IRS employee contribution limit ($23,000 in 2024).

2024 IRS Contribution Limits

• Under age 50: $23,000 per year (employee contributions)
• Age 50 and older: $30,500 per year ($23,000 + $7,500 catch-up)
• Total limit (employee + employer): $69,000 (or $76,500 with catch-up)

Key Factors That Affect Your 401(k) Balance

• Contribution rate: Higher contributions mean faster growth. Aim to at least capture the full employer match.
• Starting early: Thanks to compound interest, starting at 25 vs. 35 can mean hundreds of thousands more at retirement.
• Investment returns: A diversified portfolio historically returns 7-10% annually. Even 1% difference compounds significantly over decades.
• Salary growth: As your salary increases, so do your dollar contributions (assuming a constant percentage).
• Employer match: This is essentially a guaranteed return on your investment. Never leave it on the table.

Frequently Asked Questions