401(k) Calculator

A 401(k) is an employer-sponsored retirement savings plan authorised under Section 401(k) of the Internal Revenue Code. It lets you defer part of your salary — pre-tax in a Traditional 401(k), or after-tax in a Roth 401(k) — into an investment account earmarked for retirement. Contributions come out of your paycheck automatically before you see them, which sidesteps the willpower problem that kills most saving efforts.

The tax-advantaged status is what makes a 401(k) so powerful. In a Traditional 401(k), contributions reduce your current taxable income, the account grows tax-deferred (see Compound Interest Calculator for the pure math on this), and you pay ordinary income tax only when you withdraw the money in retirement. In a Roth 401(k), contributions come from after-tax dollars, the account grows tax-free, and qualifying withdrawals in retirement are also tax-free. Both structures let compound interest work without an annual tax drag — the single most important quantitative feature of retirement accounts.

Nearly every employer 401(k) offers an "employer match" — a percentage of your contribution that the employer adds on top, up to a defined limit. Capturing the full match is essentially free money and should be the first priority in any savings plan.

The IRS publishes updated retirement contribution limits every fall for the following calendar year, indexed to inflation. For 2026, the limits are:

Employer matching contributions are unique in personal finance: nowhere else in your investing life will you earn an immediate 25%, 50%, or 100% return the moment you invest a dollar. A typical match is dollar-for-dollar on the first 3% of salary and 50 cents on the dollar for the next 2% — a common "safe harbor" 401(k) formula that produces a 100% immediate return on the first 3% of contributions and 50% on the next 2%.

Concretely: a person earning $75,000 who contributes 5% ($3,750) with this match receives $3,000 from the employer — a total of $6,750 added to the account for a $3,750 out-of-pocket cost. Skipping the match to spend the $3,750 elsewhere means walking away from $3,000 of compensation you have already earned.

The Vanguard How America Saves 2024 report notes that about 20% of eligible employees fail to capture the full match — mostly because they never adjusted their contribution rate up from the default enrollment percentage. If nothing else, contribute at least enough to capture the full match before considering any other savings vehicle.

Since 2006, most employer plans allow both Traditional and Roth 401(k) contributions. The choice hinges on a single question: do you expect to be in a higher marginal tax bracket now, or in retirement? If you expect to be in a higher bracket now, contribute Traditional (defer taxes to the lower future bracket). If you expect to be in a higher bracket in retirement, contribute Roth (pay taxes now at the lower current bracket, avoid them later).

For most early-career savers with rising incomes, the honest answer is "I don't know" — future tax law is unpredictable, and lifetime earnings trajectories rarely turn out the way we predict. That uncertainty is a legitimate reason to split contributions across both types: half Traditional, half Roth. This tax-diversifies the retirement stash the way asset diversification protects against market outcomes.

Two structural considerations bias the decision toward Roth for younger savers. First, decades of tax-free compounding on Roth dollars beat decades of tax-deferred compounding when a withdrawal-rate mistake in retirement pushes the retiree into a higher bracket than expected. Second, Roth balances have no Required Minimum Distributions during the original account holder's lifetime — Traditional balances do. That optionality has real value in retirement withdrawal planning.

Your own contributions are always 100% vested — that money is yours immediately. Employer match contributions, however, may be subject to a vesting schedule, meaning you only fully own that money after a defined period of service.

The two common schedules are cliff vesting (0% until you hit a service milestone, then 100%, typically at 3 years) and graded vesting (usually 20% per year over 5 years, starting after 2 years of service). If you leave the employer before fully vesting, the unvested portion of the employer match is forfeited back to the plan.

This is a real consideration for job changes. Leaving 3 months before a vesting cliff can cost you tens of thousands of dollars in walkaway match. Before accepting a new job offer, check your current plan's vesting schedule against your tenure. In many cases the offered signing bonus at the new employer is calibrated to cover the forfeited match — but not always. Ask.

When you leave an employer, you generally have four options for your 401(k): leave it in the old plan (if permitted, and if the balance is above the plan's cash-out threshold), roll it into your new employer's 401(k), roll it into a Traditional or Roth IRA, or cash it out (rarely the right move — see next section).

The mechanically-safest rollover is a direct trustee-to-trustee transfer: the old plan sends the money directly to the receiving IRA or new 401(k) without touching your bank account. This avoids the 60-day rollover trap and the 20% mandatory federal-tax withholding that applies to distributions paid directly to you (which you would have to make up out of pocket to complete a rollover, then reclaim as a refund when you file taxes).

A Roth 401(k) can only roll into a Roth IRA (not into a Traditional IRA). A Traditional 401(k) can roll into either a Traditional IRA (no tax event) or a Roth IRA (a taxable conversion, at which point you pay ordinary income tax on the pre-tax balance). Roth conversions can be a strategic tax move in low-income years, but require careful planning to avoid unexpectedly high tax bills.

Withdrawing from a 401(k) before age 59½ triggers a 10% federal early-withdrawal penalty on the withdrawn amount, on top of the ordinary income tax already owed on Traditional-401(k) balances. On $50,000 withdrawn early by a 35-year-old in the 24% federal bracket, the total damage is $5,000 penalty plus $12,000 federal income tax plus state tax — roughly $19,000 lost from a $50,000 withdrawal.

Several exceptions apply. The Rule of 55 lets you withdraw penalty-free from your CURRENT employer's 401(k) if you separate from service in or after the year you turn 55 (age 50 for public-safety employees). Substantially Equal Periodic Payments (SEPP, IRS Section 72(t)) allow penalty-free withdrawals as annuitized payments over your life expectancy. Hardship withdrawals cover certain narrowly-defined emergencies but still owe the 10% penalty in most cases. None of these should be treated as "escape hatches" — the mechanics are punitive by design because the retirement-savings mission is long-horizon.

Traditional 401(k) balances are subject to Required Minimum Distributions (RMDs) starting at age 73 under the SECURE 2.0 Act of 2022 (was 72 under the original SECURE Act, was 70½ before that). Each year after the RMD age, the IRS requires you to withdraw a percentage of your balance based on your remaining life expectancy per Uniform Lifetime Table calculations. The withdrawal is taxed at ordinary income rates.

RMDs on a $500,000 Traditional balance start at roughly $19,000/year at age 73, growing over time as the divisor decreases. Failing to take a required RMD incurs a 25% excise tax on the shortfall (reduced from 50% under the original SECURE 2.0, and further reduced to 10% if corrected quickly). Roth 401(k) balances are exempt from RMDs during the original account holder's lifetime under a SECURE 2.0 change effective 2024 (previously Roth 401(k)s did face RMDs, unlike Roth IRAs). This makes Roth accounts significantly more flexible in retirement.

Every 401(k) plan carries three layers of fees: plan-level record-keeping and administrative fees, investment-option expense ratios, and (sometimes) individual service fees. Under DOL Regulation 404(a)(5), your employer must disclose these fees to you annually. Actually reading the disclosure is one of the most under-done exercises in personal finance.

The quantitative impact is enormous. A 0.5% total fee difference on a portfolio compounding at 7% over 40 years reduces the final balance by roughly 15%. On a projected $1 million balance, that is $150,000 forfeited to fees. Many older 401(k) plans still offer only actively-managed mutual funds with expense ratios above 1%; these can be compared to broad-index target-date funds available in most modern plans at 0.05-0.15%. If your plan's options are all high-cost, the rational response is to contribute up to the match, then direct additional retirement savings to a Roth IRA (where you control the investment lineup) before returning to the 401(k) for anything above the IRA limit.

A rational retirement-savings priority order for most US workers, based on the marginal after-fee, after-tax return of each incremental dollar: