401(k) Contribution Calculator

A 401(k) is an employer-sponsored retirement account that lets you invest a portion of your paycheck before taxes. The money grows tax-deferred, meaning you pay income tax only when you withdraw it in retirement. For many Americans, maxing out their 401(k) — especially the employer match — is the single most powerful wealth-building tool available.

Contribution Limits (IRS 2025)

• Under age 50: $23,500 per year of your own contributions
• Age 50 and older: $31,000 per year (includes $7,500 catch-up contribution)
• Total combined limit (you + employer): $70,000 ($77,500 with catch-up)

These limits rise most years to keep pace with inflation. Contributing above the limit is not allowed and, if it happens by mistake, the excess must be withdrawn to avoid penalties.

Employer Match: Free Money

Many employers match a percentage of what you contribute, up to a set cap. A typical match is "100% up to 6% of salary" — meaning if you contribute 6% of your paycheck, your employer kicks in another 6%. Over a 30-year career, this match alone can add hundreds of thousands of dollars to your retirement balance.

Rule of thumb: Always contribute at least enough to capture the full employer match. Anything less is leaving free money on the table.

Traditional vs. Roth 401(k)

Most employers offer both options:

• Traditional: Contributions are pre-tax, reducing your current taxable income. You pay tax on withdrawals in retirement.
• Roth: Contributions are after-tax, but qualified withdrawals (including all earnings) are tax-free.

If you expect to be in a higher tax bracket in retirement — or you're early in your career — Roth is often the better choice. If you're in peak earning years and want a tax break now, Traditional may win.

The Power of Compound Growth

The biggest driver of your retirement balance isn't how much you contribute — it's how long your money compounds. A 25-year-old contributing $500/month with a 7% average return will retire with roughly $1.2 million. The same contribution started at age 40 grows to only about $340,000. Every decade of delay roughly halves your final balance.

The 4% Rule

A widely cited retirement guideline says you can safely withdraw about 4% of your portfolio each year in retirement without running out of money over 30 years. So a $1 million balance supports roughly $40,000/year, or $3,333/month. This calculator uses that rule to estimate your monthly retirement income.

Most employer plans now offer both Traditional and Roth 401(k) options. The difference comes down to when you pay tax — now or later.

Traditional 401(k)

Contributions reduce your taxable income now. The money grows tax-deferred. When you withdraw in retirement, every dollar (contributions plus earnings) is taxed as ordinary income. Best when you expect to be in a lower tax bracket in retirement than you are today — which is often true for high earners in their peak years.

Roth 401(k)

Contributions are made with after-tax dollars (no immediate deduction). The money grows tax-free. Qualified withdrawals in retirement — both contributions and earnings — are completely tax-free. Best when you expect to be in a higher tax bracket in retirement, are early in your career, or want tax-free income to manage retirement tax planning.

Splitting Between Both

Many savers split contributions across both accounts. This creates "tax diversification" — flexibility to draw from either bucket strategically in retirement based on tax rates that exist at that time. Even if you can't predict future tax law perfectly, having both buckets gives you options.

Employer Match Goes Into Traditional (Usually)

Even if you contribute to a Roth 401(k), employer match contributions are typically deposited into a Traditional account. Match dollars are taxed when withdrawn. This is changing — recent legislation allows employers to deposit matches into Roth accounts as a Roth contribution, but adoption is still rolling out.

The Tax-Bracket Math

Simplified rule: if your current marginal tax rate is meaningfully higher than what you expect in retirement, choose Traditional. If it's lower (early career, lower income year, expecting income growth), choose Roth. Most people hit some of both during their career, which is another argument for diversifying.

Maxing your 401(k) doesn't help much if your money sits in a low-return cash fund or expensive actively-managed funds that lag the market. Here's a practical framework for choosing investments.

Step 1: Find the Expense Ratios

Every fund in your 401(k) has an "expense ratio" — the percentage taken out for management each year. Index funds typically charge 0.02%–0.20%. Actively managed funds charge 0.50%–1.50%. Over 30 years, a 1% expense difference compounds to roughly 30% less retirement wealth. The cheapest fund in each category is almost always the best choice for typical investors.

Step 2: Pick a Target Allocation

For long horizons (15+ years), 80%–100% in stocks is appropriate for most savers. As retirement approaches, gradually shift toward bonds. A common heuristic is "120 minus your age in stocks" — at 30, hold 90% stocks; at 60, 60% stocks. More aggressive savers tilt higher; more conservative savers tilt lower. There is no single right answer.

Step 3: Use a Target-Date Fund (the Easy Way)

Target-date funds (TDFs) — labeled by your expected retirement year (e.g., "2055 Fund") — automatically diversify across stocks and bonds and gradually de-risk as the date approaches. For most savers, especially those who don't want to actively manage allocations, a low-cost TDF is the right answer. Check the expense ratio: TDFs from Vanguard, Fidelity, and Schwab typically charge 0.10%–0.20%.

Step 4: Or Build a Three-Fund Portfolio

If you prefer control, the simplest do-it-yourself portfolio uses three funds:

• US Total Stock Market Index (e.g., 60%)
• International Total Stock Market Index (e.g., 25%)
• US Total Bond Market Index (e.g., 15%)

Rebalance once or twice a year. This portfolio matches or beats the vast majority of actively-managed strategies over decades.

What to Avoid

• Company stock concentration: If your employer is in your 401(k) options and you also receive RSUs, you may be over-concentrated in your employer. Enron and Lehman employees lost both jobs and retirement savings simultaneously. Limit company stock to 5%–10% maximum.
• Stable value or money market funds for the long term: These are appropriate for retirees needing income; for 30+ year horizons, they badly trail inflation.
• Sector funds, leveraged ETFs, or thematic funds: Concentrated bets that usually underperform broad market indexes long-term.

Your own contributions are 100% yours from day one. Employer matches are different — they're often subject to a "vesting schedule" that determines how much you keep if you leave the company.

Common Vesting Schedules

• Immediate vesting: All employer money is yours immediately. Most common at small employers and modern tech companies.
• Cliff vesting: 0% until you hit a milestone (typically 3 years), then 100%. Leave at year 2 = lose all employer match. Stay through year 3 = keep all of it.
• Graded vesting: Gradual schedule, typically 20% per year over 5 years. Leave at year 3 = keep 60%, lose 40%.

How Vesting Affects Job Switches

If you're considering leaving a job, check your vesting schedule first. Waiting 3–6 months to cross a cliff or vesting milestone can be worth tens of thousands of dollars. When negotiating new offers, ask about sign-on bonuses or higher salary to offset unvested money you're forfeiting.

The average American holds 12+ jobs in their career. That can mean a trail of small, forgotten 401(k) accounts at past employers — each with limited investment options, possibly high fees, and easy to lose track of.

Option 1: Roll Over to a Traditional IRA

The most common choice. A direct rollover to an IRA at a low-cost brokerage (Fidelity, Schwab, Vanguard) gives you access to virtually any investment and consolidates accounts. No taxes triggered if done as a direct rollover.

Important: roll Traditional 401(k) money into a Traditional IRA, and Roth 401(k) money into a Roth IRA. Mixing types creates tax complications (and may even disqualify "backdoor Roth" strategies).

Option 2: Roll Over to Your New Employer's 401(k)

If your new employer's plan accepts rollovers (most do), this consolidates your retirement money in one place. Advantages: simpler ongoing management, possible better creditor protection than IRAs, ability to take loans against the balance (though loans are usually a bad idea). Disadvantage: limited to the new plan's investment options.

Option 3: Leave It (Sometimes Fine)

If your old 401(k) has excellent low-cost index funds (large employers like Microsoft, Amazon, Vanguard often do), leaving it alone is fine. You typically can't make new contributions, but the money continues to grow.

Option 4: Cash Out (Almost Always a Mistake)

Cashing out a 401(k) before retirement triggers ordinary income tax plus a 10% early-withdrawal penalty (with limited exceptions before 59½). A $30,000 cash-out for a 35-year-old in the 22% bracket nets only ~$20,000 — and you've also lost decades of compound growth. Avoid unless the alternative is true financial emergency.

Find Lost 401(k) Accounts

If you've lost track of an old account, check the National Registry of Unclaimed Retirement Benefits (unclaimedretirementbenefits.com) or contact your former employer's HR department. The Department of Labor also runs a search tool. Tens of billions of dollars sit in forgotten retirement accounts.

Most 401(k) plans allow you to borrow against your balance. This is usually marketed as a flexibility benefit — but it comes with significant risks.

How 401(k) Loans Work

You can typically borrow up to 50% of your vested balance, max $50,000. You pay yourself back with interest (currently 1–2% above prime rate) over up to 5 years (longer for home purchase). The interest goes back into your account, so it feels like you're paying yourself.

The Hidden Costs

• Lost growth: Borrowed money isn't invested. If markets gain 8% during your loan period and your loan rate is 6%, you've effectively lost 2% per year on the borrowed amount.
• Job-loss risk: If you leave or lose your job, the entire loan is typically due within 90 days. Unable to repay it becomes a "deemed distribution" — taxed as income plus the 10% early-withdrawal penalty.
• Reduced contributions: Many savers reduce or pause 401(k) contributions while repaying a loan. Combined with the lost growth on borrowed money, this can substantially reduce retirement wealth.

Hardship Withdrawals

Different from a loan — you take money out without paying it back. Allowed only for "immediate and heavy financial need" (medical bills, preventing foreclosure, funeral expenses, certain education costs). The withdrawal is taxed as ordinary income, plus the 10% early-withdrawal penalty if you're under 59½. Some plans may suspend your contributions for 6 months after a hardship withdrawal.

Better Alternatives

Before tapping a 401(k), consider: 0% APR balance transfer cards, personal loans, HELOC (if you own a home), borrowing from family. The math almost always favors leaving retirement money alone.

The IRS doesn't let pre-tax retirement money sit in your account forever. Starting at age 73 (under current law), you must take Required Minimum Distributions from Traditional 401(k)s and IRAs each year. The percentage required each year is based on your account balance and life expectancy from IRS tables.

What Counts and What Doesn't

RMDs apply to Traditional 401(k)s, Traditional IRAs, SEP IRAs, and SIMPLE IRAs. Roth IRAs have no RMDs during the original owner's lifetime. Roth 401(k)s previously had RMDs, but new rules (effective 2024) eliminate them.

Penalty for Missing

The IRS penalty for not taking your full RMD is 25% of the shortfall (recently reduced from 50%). You can typically request a penalty waiver if the miss was due to "reasonable error" and you take the missed amount as soon as you discover the error.

Strategies to Reduce Future RMDs

• Roth conversions: Converting Traditional to Roth in lower-income years reduces future RMDs. The conversion is taxed now, but future withdrawals (including by your heirs) are tax-free.
• Qualified charitable distributions (QCDs): Once you're 70½, you can distribute up to $105,000/year (2024 limit) directly from an IRA to a qualified charity. Counts toward RMDs but isn't taxable income.
• Working past 73: If you continue working at the company sponsoring your 401(k) and don't own more than 5%, you can defer RMDs from that 401(k) until you actually retire. Doesn't apply to IRAs or other employers' plans.

Maybe you're 45 with $30,000 saved. Or 55 with $80,000. Catching up is harder than starting early, but it's far from impossible.

Catch-Up Contributions

Once you turn 50, you can contribute extra "catch-up" amounts beyond the standard limits. For 2025, that's $7,500 extra in your 401(k) (on top of the $23,500 base) and $1,000 extra in IRAs. Beginning in 2025, savers aged 60–63 can contribute even more — $11,250 in catch-up to 401(k)s.

Save Aggressively

If you're behind and able, target 20%–30% of gross income. This is uncomfortable, but the math demands it. Cutting big expenses (downsizing your home, driving older cars, moving to lower cost-of-living areas) frees up the savings power most needed.

Work a Few Years Longer

Each additional year of work has triple impact: an additional year of contributions, an additional year of compound growth, and one less year of retirement to fund. Working from 65 to 67 can substantially change retirement outcomes.

Reduce Your Retirement Income Need

The standard "80% income replacement" rule doesn't apply universally. Lower spending in retirement (downsized home, no commuting, no career wardrobe, no kids in college) means you need less. Some retirees comfortably live on 50%–60% of pre-retirement income with strategic downsizing.

Consider Delayed Social Security

For each year you delay claiming Social Security past full retirement age (up to age 70), benefits increase 8%. That's a guaranteed inflation-adjusted return that's hard to match anywhere else. If your health and finances allow it, delaying to 70 substantially improves retirement income.

401(k)

Employer-sponsored retirement plan named after the IRS code section. Pre-tax contributions reduce current taxable income; growth and withdrawals are taxed as ordinary income.

403(b)

Similar to a 401(k) but for public schools, hospitals, and certain nonprofits. Same contribution limits, similar tax treatment.

457(b)

Deferred compensation plan for state and local government employees and some nonprofits. Notable feature: no early-withdrawal penalty when separating from service, regardless of age.

Backdoor Roth IRA

A strategy for high earners (above the Roth IRA income limit) to contribute to a Traditional IRA and immediately convert to Roth. Legal when properly executed; check the "pro-rata rule" if you have other Traditional IRA assets.

Catch-Up Contribution

Additional contribution amount allowed for savers age 50+. Increases the standard contribution limit.

Defined Benefit vs Defined Contribution

Defined benefit plans (traditional pensions) promise a specific payout in retirement. Defined contribution plans (401(k), 403(b), IRA) accumulate based on contributions and investment performance.

Mega Backdoor Roth

A strategy using after-tax 401(k) contributions (allowed in some plans beyond standard limits) converted to a Roth IRA or Roth 401(k). Powerful for high earners with the right plan features. Requires after-tax contribution option and in-plan or in-service rollover availability.

Pro-Rata Rule

IRS rule for IRA conversions: when converting Traditional IRA money to Roth, the conversion is taxed pro-rata based on all your Traditional IRA balances. Affects backdoor Roth strategies if you have existing Traditional IRA assets.

Required Minimum Distribution (RMD)

Mandatory annual withdrawal from Traditional retirement accounts starting at age 73 under current law.

Rollover

Moving retirement money from one account to another without triggering taxes. Direct rollovers (custodian-to-custodian) are simpler than 60-day rollovers (which require redepositing within 60 days to avoid taxes).

Roth Conversion

Moving money from Traditional to Roth, paying ordinary income tax on the converted amount in exchange for tax-free future growth and withdrawals.

Vested

The portion of employer-contributed money that's permanently yours, even if you leave the company. Your own contributions are always 100% vested immediately.