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401(k) Savings Calculator
A 401(k) can be one of your best tools for creating a secure retirement. It provides you with two important advantages. First, all contributions and earnings to your 401(k) are tax deferred. You only pay taxes on contributions and earnings when the money is withdrawn. Second, many employers provide matching contributions to your 401(k) account which can range from 0% to 100% of your contributions. The combined result is a retirement savings plan you can not afford to pass up.
Definitions
- Annual salary
- This is your annual salary from your employer before taxes and other benefit deductions. Since your contribution and company match are based on the salary paid to you by your employer, do not include any income you may receive from sources other than your employer.
- Percent to contribute
- This is the percentage of your annual salary you contribute to your 401(k) plan each year. Most employers permit employees to contribute up to 15 percent of their salary to a 401(k).
- Annual contribution limits
- Your total contribution for one year based on your annual salary times the percent you contribute. However, your annual contribution is also subject to certain maximum total contributions per year. The annual maximum for 2002 is $11,000. This amount will increase gradually through 2006 to $15,000. If you are over 50, a new "catch-up" provision allows you to contribute even more to your 401(k). Starting in 2002 employees over 50 can deposit an additional $1,000 into their 401(k) account. Catch-up contributions level off at $5,000 per year in 2006. The table below lists the maximum contributions and catch-up contributions for each year through 2006.
Year | Employee Contribution limit | Additional "catch-up" contributions for workers 50+ |
2002 | $11,000 |
$1,000 |
2003 | $12,000
| $2,000 |
2004 | $13,000
| $3,000 |
2005 | $14,000
| $4,000 |
2006* and after | $15,000
| $5,000 |
It is important to note that some employees are subject to another form of contribution limitations. Employees classified as "Highly Compensated" may be subject to contribution limits based on their employer's overall 401(k) participation. If you expect your salary to be above $90,000 you may need to contact your employer to see if these additional contribution limits apply to you.
Current age- Your current age.
- Age of retirement
- Age you wish to retire. This calculator assumes that the year you retire you do not make any contributions to your 401(k). So if you retire at age 65, your last contribution happened when you were actually 64.
- Current 401(k) balance
- The starting balance or current amount you have invested or saved in your 401(k).
- Annual rate of return
- The annual rate of return for your 401(k) account. This calculator assumes that your return is compounded annually and your deposits are made monthly. The actual rate of return is largely dependant on the type of investments you select. For example, for the last thirty years the average annual rate of return for domestic equity stocks has been about 10%. Savings accounts at a bank pay as little as 2%.
- Employer match
- An employer match is in addition to your annual contributions. It is based on a percentage of your annual contributions. This range can be anywhere from 0% to 100%. An employer match is usually only for a limited portion of your salary. Please read the definition for "Employer maximum" for a detailed description.
- Employer maximum
- This is the maximum percent of your salary matched by your employer regardless of the amount you decide to contribute. For example, lets assume your employer has a 50% match up to a maximum of 6% of your annual salary. If you have an annual salary of $25,000 and contribute 6%, your annual contribution is $1500. With a 50% match, your employer will add another $750 to your 401(k) account. If you increase your contribution to 10% your annual contribution is $2500 per year. Your employer match, however, is limited to the first 6% of your salary and remains at $750.
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