401K Calculator

401(k) Information

A 401(k) is an employer-sponsored retirement savings plan named after the section of the Internal Revenue Code that created it in 1978. Employees choose a percentage of each paycheck to put into the plan, the money is invested in funds the plan offers, and taxes are deferred until it is withdrawn in retirement. It has become the main way private-sector workers in the US save for retirement, largely replacing traditional pensions.

For 2026, an employee can defer up to $24,500 of salary. Workers aged 50 or older can add a catch-up contribution of $8,000, and those aged 60 to 63 can add $11,250 instead. Employer contributions are on top of that, with combined employee and employer additions capped at $72,000 for 2026, not counting catch-ups. Nonprofit and public employers offer similar plans under the names 403(b) and 457(b).

The calculator above projects a balance year by year: your contribution rises with your salary until it reaches the limit, the employer adds its match, and the whole balance grows at the return you enter.

General Pros and Cons of a 401(k)

A 401(k) is one of the most powerful savings tools available to employees, but it comes with trade-offs.

• Tax deferral: traditional contributions come out of pay before federal income tax, lowering your tax bill today, and investment growth is not taxed until withdrawal. Roth contributions reverse the timing.
• Employer match: free money from the employer is an instant return on your contributions, often 50% or 100% on the first few percent of pay.
• Automatic saving: contributions come out of each paycheck before you see them, which makes saving consistent. Many plans automatically enroll new hires and raise their contribution rate each year.
• High limits: the deferral limit is more than three times the IRA limit, so a 401(k) can absorb serious savings.
• Creditor protection: money in an ERISA-covered 401(k) is generally shielded from creditors and bankruptcy.
• Limited investment choices: you can only pick from the plan's menu, which may contain expensive or mediocre funds.
• Fees: administrative and fund fees vary widely between plans and can take a noticeable bite out of long-term growth. Plan fee disclosures list them.
• Restricted access: withdrawals before 59½ usually face a 10% additional tax plus income tax, and loans and hardship withdrawals have strict rules.
• Taxed withdrawals: every dollar of a traditional 401(k) is taxed as ordinary income when withdrawn, possibly at a higher rate than you expect if tax rates rise.
• Required distributions: traditional balances must start coming out at 73 or 75, depending on birth year, whether you need the money or not.

A 401(k) is a Defined Contribution Plan

Retirement plans come in two kinds. A defined-benefit plan, the classic pension, promises a specific monthly payment for life based on a formula of salary and years of service. The employer funds the plan and carries the risk that investments fall short. A defined-contribution plan like a 401(k) defines only what goes in. What comes out depends entirely on how much was contributed and how the investments performed, so the employee carries the investment risk and the risk of outliving the money.

Defined-contribution plans spread quickly from the 1980s onward because they are cheaper and more predictable for employers and portable for workers. When you change jobs, the money goes with you: you can leave it in the old plan if the balance is large enough, roll it into the new employer's plan, or roll it into an IRA. A direct rollover avoids taxes and the 20% withholding that applies when a distribution is paid to you.

Employer contributions may have to vest before you own them. Federal rules allow either cliff vesting, with full ownership after no more than three years, or graded vesting that reaches 100% after no more than six years. Your own contributions are always fully vested.

401(k) Investments

A typical plan offers a dozen or two options: stock index funds, actively managed funds, bond funds, a stable value or money market fund, and target-date funds. A target-date fund holds a mix of stocks and bonds that becomes more conservative as its target year approaches, and it is the default investment in many plans. Low-cost index funds are usually the best value on a plan menu. Avoid putting a large share of the balance into your own employer's stock, which ties your savings to the same company that pays your salary.

Employer Match

Many employers match part of what employees contribute, up to a limit expressed as a percentage of salary. A common formula is 50% of contributions up to 6% of pay: an employee earning $75,000 who contributes 6%, or $4,500, receives another $2,250. Some employers match dollar for dollar up to 3% or 4%; others use tiers, such as 100% of the first 3% and 50% of the next 2%. A few make non-elective contributions to every eligible employee whether or not the employee contributes.

Contributing at least enough to collect the full match is one of the most reliable financial moves available, because no ordinary investment offers an immediate 50% or 100% return. The match calculator above finds that minimum contribution for a one- or two-tier formula. With the defaults, a $75,000 earner whose employer matches 50% of the first 3% and 20% of the next 3% should contribute at least 6%, or $4,500, to collect $1,575 a year.

Watch the timing. Some employers calculate the match each pay period, so an employee who reaches the yearly deferral limit early in the year by contributing a large percentage stops receiving the match for the remaining paychecks. Plans with a year-end true-up correct for this; others do not. Spreading contributions over the whole year avoids the problem. Also check the vesting schedule: leaving before employer money vests forfeits the unvested part.

Under SECURE 2.0, employers may also choose to make matching contributions to the Roth side of the plan or to match an employee's student loan payments as if they were 401(k) deferrals.

Early Withdrawal

A 401(k) is designed for retirement, and the tax code discourages early access. Withdrawals before age 59½ are taxed as ordinary income and usually face a 10% additional tax. State income tax may apply as well. The early withdrawal calculator above shows how quickly these costs add up: with the defaults, a $10,000 withdrawal at a 25% federal and 5% state rate leaves only $6,000 after the penalty.

Several exceptions remove the 10% additional tax, though not the income tax. They include leaving your job in or after the year you turn 55 (age 50 for many public safety workers), total and permanent disability, unreimbursed medical expenses above 7.5% of adjusted gross income, distributions under a qualified domestic relations order after a divorce, substantially equal periodic payments, and up to $5,000 for a birth or adoption. Newer exceptions added by SECURE 2.0 cover a $1,000 emergency withdrawal once a year, terminal illness and some disaster losses.

Many plans offer loans as an alternative. You can usually borrow up to half of the vested balance, to a maximum of $50,000, and repay yourself with interest through payroll. A loan avoids taxes and penalties, but if you leave the job the unpaid balance may have to be repaid quickly or be treated as a distribution. Hardship withdrawals are allowed for immediate and heavy financial needs, such as avoiding eviction or paying funeral costs, but they are taxed and penalized like other early withdrawals unless an exception applies.

401(k) Distributions in Retirement

After 59½, or 55 for those who left the employer at that age or later, money can come out of a 401(k) without the additional tax. Retirees can take lump sums, set up regular installments, or roll the balance into an IRA for more investment choices and control over withdrawals. Some plans also offer annuity options that turn part of the balance into lifetime income.

Every withdrawal from a traditional 401(k) is taxed as ordinary income in the year it is taken, so the order and size of withdrawals matter. Spreading them over several years keeps more income in lower brackets, and drawing on taxable or Roth accounts in years when income would otherwise be high can smooth the tax bill. Withdrawals also count toward the income that determines how much of your Social Security is taxed and what you pay for Medicare Part B and Part D premiums.

How much to take each year is the central question of retirement planning. The main calculator shows the level monthly payment that would exhaust the projected balance by your life expectancy. Many retirees prefer a more conservative approach, such as starting at about 4% of the balance and adjusting with inflation, to leave a cushion for a longer life or poor markets. Keeping a year or two of spending in cash or short-term bonds helps avoid selling stocks after a crash.

Required Minimum Distributions

The government lets money grow tax-deferred, but not forever. Owners of traditional 401(k)s must start taking required minimum distributions (RMDs) at age 73 if born from 1951 to 1959, and at 75 if born in 1960 or later. The first RMD can be delayed until April 1 of the following year, but then two distributions fall in the same tax year. Each year's minimum is the prior December 31 balance divided by a life expectancy factor from the IRS Uniform Lifetime Table.

Missing an RMD triggers an excise tax of 25% of the amount not taken, reduced to 10% if corrected promptly. If you are still working at the company sponsoring the plan and do not own 5% or more of it, the plan may let you delay RMDs from that plan until you retire. Roth 401(k) balances are no longer subject to RMDs during the owner's life starting in 2024.

Self-Directed 401(k)

A self-directed 401(k) gives participants a brokerage window that goes beyond the plan's fund menu, allowing individual stocks, bonds, ETFs and sometimes alternative assets. The term is also used for solo 401(k)s that self-employed people set up for themselves. A solo 401(k) suits business owners with no employees other than a spouse: the owner can contribute both as employee, up to the regular deferral limit, and as employer, up to 25% of compensation, within the overall additions cap.

More freedom means more responsibility. Self-directed accounts must avoid prohibited transactions, such as buying property for personal use or lending to family members, and some investments bring extra fees and paperwork. A solo 401(k) with more than $250,000 in assets must also file Form 5500-EZ each year.

Roth 401(k)

Since 2006, plans have been allowed to offer a Roth option. Roth 401(k) contributions are made with after-tax money, so they do not reduce your taxable income today, but qualified withdrawals, including all of the investment growth, are tax-free once you are 59½ and the account has been open at least five years. The deferral limit is shared: $24,500 in 2026 across traditional and Roth contributions combined.

Roth contributions make most sense when you expect to be in a higher tax bracket in retirement than today, which is often the case early in a career. Traditional contributions favor people in their peak earning years who expect lower income later. Many savers split contributions between the two to diversify against future tax changes.

Unlike a Roth IRA, a Roth 401(k) has no income limit, so high earners can use it. Starting in 2026, employees who earned more than $150,000 in FICA wages from the employer the previous year must make any catch-up contributions as Roth contributions. Roth 401(k) balances can be rolled into a Roth IRA when you leave the job.

Frequently asked questions

Sources

• IRS – 401(k) Plans
• IRS – Retirement Topics: Exceptions to Tax on Early Distributions
• U.S. Department of Labor – Retirement Plans