Calculate Your 401(k) Growth
Your Contributions
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Employer Match
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Investment Growth
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Total at Retirement
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| Age | Salary | You + Employer | Balance |
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What is a 401(k)?
A 401(k) is an employer-sponsored retirement savings 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. Here's what makes it powerful:
- Tax-deferred growth: Your investments grow tax-free until you withdraw in retirement, allowing compounding on the full pre-tax amount.
- Employer match: Many employers match a portion of your contributions — typically 50% of your contribution up to 6% of salary. That's an immediate 50% return on your money.
- Automatic payroll deduction: Contributions come directly from your paycheck, building discipline and making saving effortless.
- High contribution limits: You can contribute up to $23,500/year (2025), or $34,750 if you're 60–63 (SECURE 2.0 super catch-up), far more than an IRA's $7,000 limit.
Traditional vs Roth 401(k)
| Feature | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Tax on contributions | Pre-tax (reduces taxable income now) | After-tax (no upfront tax break) |
| Tax on withdrawals | Taxed as ordinary income | Tax-free (contributions + earnings) |
| Best if you expect | Lower tax rate in retirement | Higher or same tax rate in retirement |
| RMDs | Required at age 73 | No RMDs (starting 2024) |
| Income limits | None | None (unlike Roth IRA) |
401(k) Contribution Limits (2025)
| Category | Limit |
|---|---|
| Employee contribution (under 50) | $23,500 |
| Catch-up contribution (50–59, 64+) | $7,500 additional ($31,000 total) |
| Super catch-up (ages 60–63) | $11,250 additional ($34,750 total) |
| Total limit (employee + employer) | $70,000 (under 50) / $77,500 (50+) |
Tip: Always contribute at least enough to get the full employer match. Leaving employer match on the table is literally turning down free money — it's a guaranteed 50-100% return on your contribution.
How Employer Matching Works
The most common employer match formulas:
- 50% match up to 6%: You contribute 6% of salary, employer adds 3%. (Most common)
- 100% match up to 3%: You contribute 3%, employer matches dollar-for-dollar. (Generous)
- 100% match up to 6%: You contribute 6%, employer matches all 6%. (Very generous)
- Dollar-for-dollar up to $X: Fixed dollar match regardless of salary.
Example: $75,000 salary, 50% match up to 6%
- You contribute 6% = $4,500/year
- Employer matches 50% of that = $2,250/year
- Total going into your 401(k) = $6,750/year
- Employer match = 50% free return before any investment gains!
Vesting Schedules
While your contributions are always 100% yours, employer matching funds may have a vesting schedule — you earn ownership gradually over 3-6 years. Common schedules:
- Cliff vesting: 0% until year 3, then 100% vested
- Graded vesting: 20% per year, fully vested after 6 years
- Immediate vesting: 100% yours from day one (some employers)
The Power of Starting Early
Time is the most important factor in 401(k) growth. Consider three scenarios at 7% annual return:
| Scenario | Start Age | Monthly | Years | Total Contributed | Value at 65 |
|---|---|---|---|---|---|
| Early starter | 25 | $500 | 40 | $240,000 | $1,320,000 |
| Mid starter | 35 | $500 | 30 | $180,000 | $610,000 |
| Late starter | 45 | $500 | 20 | $120,000 | $260,000 |
The early starter invests only $60,000 more than the late starter but ends up with 5x more money. That's the power of compounding over time.
401(k) Withdrawal Rules
- Before age 59½: 10% early withdrawal penalty + income tax on the full amount. Exceptions: disability, certain medical expenses, QDRO (divorce), 55+ and leave employer.
- Ages 59½ to 73: Withdraw anytime, pay ordinary income tax only (no penalty). Don't have to take distributions yet.
- Age 73+: Required Minimum Distributions (RMDs) begin. Must withdraw a calculated minimum each year. Failure to take RMDs = 25% penalty on the amount not withdrawn.
- Roth 401(k): Qualified withdrawals after 59½ are completely tax-free (contributions AND earnings). No more RMDs starting 2024.
Common 401(k) Mistakes
- Not contributing enough to get the full employer match: This is the #1 mistake. A 50% match on 6% of salary is a guaranteed 50% return — no investment in the world beats that.
- Being too conservative when young: Target-date funds or a stock-heavy portfolio (80-90% equity) is appropriate for people decades away from retirement. A 100% bond portfolio at age 25 sacrifices enormous growth.
- Cashing out when changing jobs: A cash-out triggers income tax + 10% penalty. Roll it over to your new employer's 401(k) or an IRA instead.
- Taking 401(k) loans: While allowed, loans reduce your invested balance and miss out on compounding. If you leave your job, the loan becomes due immediately or is treated as a distribution.
- Ignoring fees: High-cost funds (1-2% expense ratio) can eat 20-30% of your returns over 30 years. Choose low-cost index funds (0.03-0.15%) whenever available.
- Not increasing contributions with raises: When you get a raise, increase your 401(k) contribution by at least half the raise amount. You won't miss money you never saw in your paycheck.
Related Calculators
Plan your complete retirement strategy:
Frequently Asked Questions
A 401(k) is an employer-sponsored retirement savings plan. It lets you contribute pre-tax (Traditional) or after-tax (Roth) dollars from your paycheck into an investment account. Money grows tax-deferred until withdrawal in retirement.
At minimum, contribute enough to get the full employer match (usually 3-6% of salary). Ideally, aim for 10-15% of your salary. The maximum employee contribution is $23,500/year (2025), or $31,000 if 50+, or $34,750 if ages 60–63 (SECURE 2.0 super catch-up).
An employer match is free money your employer adds to your 401(k) based on your contributions. A common formula is 50% of your contribution up to 6% of salary. If you earn $75,000 and contribute 6% ($4,500), your employer adds $2,250.
Choose Traditional if you expect a lower tax bracket in retirement (tax break now). Choose Roth if you expect the same or higher tax bracket (tax-free withdrawals later). Many advisors suggest splitting contributions between both for tax diversification.
You have four options: (1) Roll it into your new employer's 401(k), (2) Roll it into an IRA (most flexible), (3) Leave it with your old employer (if balance exceeds $5,000), (4) Cash out (avoid this — you'll pay taxes + 10% penalty if under 59½).
You can, but withdrawals before age 59½ face a 10% early withdrawal penalty plus ordinary income tax. Exceptions include disability, certain medical expenses, and the Rule of 55 (leave employer at 55+). Roth contributions (not earnings) can be withdrawn penalty-free.
A common approach: use a target-date fund matching your expected retirement year, or build a simple portfolio of low-cost index funds. Young investors (20s-30s) can hold 80-90% stocks and 10-20% bonds. Shift to more bonds as you near retirement.
A rollover moves your 401(k) funds to another retirement account (new employer's 401(k) or IRA) without triggering taxes or penalties. Direct rollovers (trustee-to-trustee) are the safest. Indirect rollovers must be completed within 60 days.