401(k) Calculator

A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax or Roth (after-tax) dollars from their paycheck. Many employers offer matching contributions up to a certain percentage, essentially providing free money toward your retirement.

For 2024, the employee contribution limit is $23,000. If you're 50 or older, you can make an additional catch-up contribution of $7,500, bringing your total to $30,500. The combined limit for employee and employer contributions is $69,000 (or $76,500 with catch-up).

Employer matching is when your employer contributes money to your 401(k) based on your contributions. A common match is 50% of your contribution up to 6% of salary. So if you earn $100,000 and contribute 6% ($6,000), your employer adds $3,000. This is essentially free money.

Traditional 401(k) contributions are pre-tax, reducing your current taxable income but taxed on withdrawal. Roth 401(k) contributions are after-tax, providing tax-free withdrawals in retirement. Choose Roth if you expect higher taxes in retirement, Traditional if you expect lower taxes.

You can start penalty-free withdrawals at age 59½. Early withdrawals typically incur a 10% penalty plus income taxes, though exceptions exist for hardship, disability, or substantially equal periodic payments (Rule 72t). Required minimum distributions (RMDs) begin at age 73.

Financial experts recommend contributing at least enough to get your full employer match (otherwise you're leaving free money). Beyond that, aim for 10-15% of income. The ideal amount depends on your age, retirement goals, and other savings.