401(k) Calculator

A 401(k) grows through three mechanisms: your contributions, employer matching contributions, and investment returns that compound tax-deferred. An employee contributing 6% of a $75,000 salary with a 50% employer match adds $6,750 per year to their account. At a 7% average annual return, this grows to approximately $680,000 over 30 years, with investment earnings accounting for more than half of the total balance.

The tax-deferred nature of a 401(k) acts as a growth accelerator because you are not losing a portion of your gains to taxes each year. In a taxable brokerage account, capital gains and dividends are taxed annually, which reduces the amount that compounds. In a 401(k), 100% of your gains remain invested and continue generating returns. Over 30 years, this tax deferral alone can result in 25-40% more wealth compared to an identical investment in a taxable account, depending on your tax bracket and the types of investments held.

An employer match is essentially free money added to your retirement account based on your own contributions. The most common match formula is 50% of your contribution up to 6% of salary, but formulas vary widely between employers. If you earn $75,000 and contribute 6% ($4,500), a 50% match adds $2,250 annually. Not contributing enough to capture the full match is equivalent to declining a guaranteed 50% return on your money.

Some employers use dollar-for-dollar matching up to 3% or 4% of salary, while others use tiered formulas that match different percentages at different contribution levels. A growing number of companies have also introduced automatic enrollment, starting new employees at a default contribution rate (typically 3-6%) with automatic annual increases. If your company offers automatic escalation, opt in — it painlessly increases your savings rate by 1% per year until you reach a target level, and most employees report not noticing the difference in their paychecks after each increase.

The IRS sets annual limits on 401(k) contributions that are adjusted periodically for inflation. For 2024, employees under 50 can contribute up to $23,000, while those aged 50 and older can add an extra $7,500 in catch-up contributions for a total of $30,500. The combined limit including employer contributions is $69,000 ($76,500 for 50+). Contributing the maximum allowed accelerates retirement savings, especially in later career years when earnings tend to be highest.

If you cannot max out your 401(k) immediately, prioritize reaching at least the employer match threshold first, then increase your contribution by 1-2% each year or with each raise. An employee who increases their contribution rate by 1% annually from age 25 reaches the maximum contribution level within a decade while barely feeling the impact on their paycheck. The difference between contributing 6% and 15% of a $75,000 salary over 30 years at 7% returns is approximately $600,000 — a life-changing amount that comes from incremental, painless increases rather than a single dramatic cut to your lifestyle.

A traditional 401(k) uses pre-tax contributions that reduce your current taxable income, but all withdrawals in retirement are taxed as ordinary income. A Roth 401(k) uses after-tax contributions, meaning no immediate tax break, but qualified withdrawals in retirement are completely tax-free. If you expect your tax rate to be higher in retirement than it is now, the Roth option often provides greater lifetime value. Many financial planners recommend contributing to both types for tax diversification.

The decision between traditional and Roth depends heavily on your current versus expected future tax rate. Early-career professionals in lower tax brackets often benefit more from Roth contributions because they pay a low tax rate now and avoid higher rates in retirement. High earners in their peak earning years may prefer traditional contributions for the immediate tax deduction. A split strategy — contributing to both traditional and Roth — provides flexibility in retirement to withdraw from whichever account minimizes your tax bill in a given year, a technique known as tax bracket management.