401(k) Retirement Savings Calculator

401(k) Retirement Savings Calculator

Having money for your retirement is important. Luckily, there are many ways to grow your savings that don’t require much effort. One method is through a workplace program, like a 401K plan. By contributing a percentage of your salary to 401K, you can prepare for the retirement you deserve. This calculator is designed to show you the value of your 401K deposits. You can quickly see how much you will have saved up by the time you retire. Or, if you know how much you might need, you can try different deposits to meet your goal.

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401K savings Calculator
Your 401k savings program
A 401K plan is a retirement savings medium that may be offered by your employer. The workplace program comes with investments to help your funds multiply. The program was created to replace pension plans, which are becoming less customary.
There are many benefits to a 401K program that make it a worthy investment. First, all contributions are made before tax. That means any funds you add to the account can reduce your taxable income. This can save you money on your tax filing while helping you save for retirement. Secondly, the earnings will grow tax-free with the help of interest compounding. As opposed to a basic savings account, the returns on a 401K are much higher due to the accompanying investments.
In some cases, you can get additional funding from your employer through profit sharing. If your employer offers profit sharing, they can add money to your account based on your program setup. Typically, employers will provide matching contributions up to a percentage of your income. However, there are specific rules and limits concerning 401k plans. These practices involve the amount you can deposit each year and when you can access these funds.
401K rules and limitations
The IRS establishes the rules and limitations concerning 401k programs. They regularly adjust contribution limits for inflation. Typically, these adjustments are made yearly in 500 dollar increments.
Currently, employee contributions are limited to $18,500 per year. This does not include employer matching. There is a provision that allows you to deposit an extra $6,000 per year after the age of 50. These are called catch-up contributions.
When you have profit sharing, the combined deposits cannot exceed $55,000 – $60,000. The latter is if you are eligible for catch-up contributions. Annual employer additions also cannot exceed 100% of your compensation.
When it comes to withdrawing your earnings, there are some basic guidelines. The funds must remain in the account until you are 59½ or a minimum of 5 years – whichever is greater. If you try to take your money sooner, there is a 10% penalty on top of the taxes that are due. Since the earnings are considered ordinary income, your money will be taxed at the applicable rate.
You also can’t keep your money in the account indefinitely to avoid taxation. After the age of 70½, you have to start taking payments from the account.
How much should you contribute?
The amount you deposit in your 401K plan should depend on your circumstances. Though it is recommended to max out your contributions, you should add what you are comfortable with. You may find that it is difficult to make substantial contributions at certain times in life.
When you start your first job, buy a home, or send your kids to college, it can help to roll back your contributions temporarily. Plus, you get a chance to amp up your deposits closer to retirement. If you have profit sharing, it’s best to deposit enough to get a full employer match. Otherwise, you are passing up on money your boss wants to give you for your retirement.
For instance, let say your employer will provide 50% matching contributions up to 10% of your income. If you make $80,000 and contribute $12,000 a year, your employer would add $6,000 to your savings. Since they offer up to 10% of your income, you could deposit an extra $4000 to get a full $8,000 from your company.
Why should I contribute?
Even though social security benefits will always be available, the value of social security may decrease in the future. There are many retirees’ to provide benefits for and fewer workers in the workforce. Thus, these entitlement programs may have to be modified to provide some benefit to everyone in their later years. Social security benefits were only ever intended to supplement income from existing retirement savings.
Advances in modern medicine are also increasing life expectancy. This means many people will be in retirement for longer. The more time you will be in retirement, the more income you will require. Increased longevity makes these workforce savings programs even more valuable to invest in.
How do you set up a 401K account?
Your employer is the only person that is authorized to set up your 401K account. They are also the only ones allowed to transfer money into the plan. When you opt-in for a 401k, your employer will require a salary reduction agreement. With this form, you can specify what percentage of your annual income can be deposited into the account each month. Once you agree to an amount, the deduction should be listed on each of your paychecks. You can modify your contributions at any time without penalty.
What happens if I change employers?
It is entirely reasonable to change employers throughout your career. If your new employer offers 401K, you can directly transfer the funds over. If they don’t have a 401K program, you still have some options. You could freeze the account and leave it where it is, as long as rules permit. The funds would continue to grow with your investments, but no new deposits could be made.
Alternatively, you can move the funds to an IRA custodian. This is a good option if you are investment-savvy. If neither choices appeal, your final option is to cash out. However, penalties would apply if you take your money before the account reaches maturity.
Using the calculator
The calculator is very straightforward to use. It just requires some basic information regarding your investment or savings. Let’s review the details together.
Step 1. The first few questions relate to you and your 401K program. On the first line of the calculator, add the percentage of your salary to contribute. You can use the arrow keys or your keyboard to make this selection easier.
Step 2. Include your annual salary on the second line, followed by any yearly salary increases you are expecting. If you are unsure, it’s best to leave the salary increases blank. If your finances change, you can make additional calculations.
Step 3. Next, document your current age and age of retirement. Most individuals retire around 66.
Step 4. If you have any money currently in the account, add it to line 6. Then, specify the rate of return on your investments.
Step 5. The next two questions are regarding profit sharing. If your employer provides matching contributions, write down how much they will match. This variable should be a percentage of the deposits you are making.
Step 6. Finally, add the maximum match your employer will offer. This figure is expressed as a percentage of your annual salary.
From there, you can proceed to your results. There is a smart summary of the details you provided to the right of the inputs. Below the inputs, there is a prompt of how much your savings may be worth at retirement. For supplemental information, please view the integrated reports. The first tab is a comparison of your account balance with and without profit sharing. The second tab is an itemized summary of your account balance each year.
Remember to bookmark this calculator and save it to the home screen of your smartphone. You can return as your contributions or employment changes. If you found this page useful, you can promote us on social media by using the share feature. If you want to share your results, you can export a report via email to loved one or financial advisor.