It is completely natural to want the best retirement for yourself and your loved ones. Often, achieving this goal requires a good savings plan. A 401(K) program is a great retirement tool that has many benefits, such as security in future years. Our calculator can help you plan your deposits to help ensure your quality of life. You just have to add a few details about your 401k account to estimate its future value. If you continue reading, you can also learn about the program rules, like how much to deposit and when to take your earnings.
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Your 401(k) savings plan
A 401(K) plan is a tax-advantaged savings account that is offered by many corporate employers. The program allows you to set aside a portion of your earnings for your retirement each year. The money you contribute grows tax-free, along with selected investments, until you leave the workforce.
As a 401k holder, you can choose between a variety of investments to get the growth and security you want. Either a brokerage firm, insurance, or mutual fund company will narrow down a pool of investments for you. This way your account can grow based on a
rate of return
. With the
help of compound interest
you can watch your savings multiply yearly.
What is profit sharing?
In some situations, you may have the option of profit sharing. Through profit sharing, your employer can deposit extra money into your savings account. Their match is typically a percentage of your contribution, up to a portion of your annual income. So by not participating, you could be missing out on income that your company wants to give you for retirement.
A typical employer match on a 401k program is 50% of all contributions, with total deposits not exceeding 6% of the plan holders income. If you earn $100,000 a year and make full contributions, your employer could give you another $6,000 per year for your savings.
As you can see, taking part in a 401k program can be beneficial for many reasons. With bigger deposits, you can put more towards your investment and
save money on your next tax filing
. It seems that 401k savings can be a great asset to improve your livelihood now and in the future. However, there are some caps on how much you can deposit into the account each year to prevent plan holders from having unlimited tax deferrals.
Plan limits, provisions, penalties, and taxes
is responsible setting out the contribution limits on 401(K) plans. They adjust these limits regularly for inflation. The IRS also sets out any guidelines for provisions, taxes, and penalties.
Currently, employee contribution limits are set to $18,500 per year. This does not include employer matching.
If you are over 50, there is a provision that allows you to contribute an extra $6,000 per year. This additional allowance is called a catch-up contribution and raises the annual contribution to $24,500.
Annual employer additions cannot exceed 100% of the participant’s compensation or $54,000 – $60,000. The higher end of the limit is if catch up contributions apply.
There is a 10% penalty if you take your funds before the age of 59 ½, or if the account is less then five years old. Unless you
enforce rule 72t
to take early payments.
How much should you be contributing?
Current and future generations have to
rely mostly on their assets
to draw income at retirement. Pension plans are getting harder to come by, so most workers can’t fall back on their employers to provide a steady income during retirement. Instead, employers have implemented the 401k program as an alternative security. That said, there is no amount that qualifies as a perfect contribution. It’s likely that you will have to increase and decrease your deposits to compliment the different stages of your life.
Ultimately, that means to contribute as much as you can to your 401(K) account. If you have profit sharing, you should deposit enough to get your full matching contributions. When your employer offers profit sharing up to 6% of your income, you should deposit enough to get that full 6%. Let’s say you make $100,000, that means you’re eligible to get an extra $6,000 added to your savings. If your employer does a 50% match, you would have to allocate at least $12,000 to your 401k to receive the full match. And whenever possible, it is recommended to max out your contributions.
Your 401k earnings can be
combined with your social security
to supplement your income when you retire. Advances in modern medicine are
increasing life expectancy
. This means time in retirement is rising as well. The longer you will be in retirement, the more funds you will require. Increased longevity makes a workforce saving program even more critical to invest in.
What is this calculator for?
The 401k savings calculator is designed to show you the future value of your 401k account. It just requires some details about the contributions to the plan, your balance, and rate of return.
When you are using this calculator, it is assumed that your interest is compounded yearly. The amount of income from your investment depends on your portfolio.
How to use the calculator
The 401(K) savings calculator has two parts: an information intake and integrated results. You will need to provide some basic details about yourself to get started. Let’s go over this together.
401(K) employee savings plan
: When you know how much you can deposit into your 401k, you should add the
percent to contribute
on the first line. This is the percentage of your annual income that will be put in your savings. Once you decide how much to contribute, your employer will arrange fund transfers before providing your pay.
: On the second line of the calculator, include your
. Any yearly
can be added it to line three.
: You can add your
to the fourth line of the calculator. Using the arrow keys can make this input even easier for you.
: On the fifth line of the calculator, document your planned
age of retirement
: You should add your
current 401(K) balance
to the sixth line.
the annual rate of return
you expect on your investment on the seventh line. Your HR department should provide this information to you.
: You can add your
employer profit share
on line eight. Indicate this figure as a percentage of your annual salary. Most employers provide a match if you make a specific contribution amount. This amount will vary between employers.
To the right of inputs, you can view a smart summary of your initial account values. Here you are provided with the value of your employee contributions, along with your employer’s profit sharing.
Directly below the inputs is your account total after contributions and investment growth. This is the earnings you will have for your retirement. If this figure falls short of your needs, you may have to make some changes to your plan. You should consider increasing your contributions or reducing your expenses in retirement. You may even want to think about retiring later.
The first results tab shows the growth of your 401(K) savings. Here you can see your contributions with employer matching in blue and without profit sharing in green. It is always worth contributing enough into your 401(K) account to receive full employer matching.
The next tab, 401(K) balance by year, summarizes the annual growth of your account. Here you can clearly view the balance of your account each year.
Now that you know the potential of your 401(K) plan you can tailor your deposits to your goals. Try out different contributions and maturities to see how much more you can save. The program will provide better tax breaks as you contribute more.As you build up your savings, you can have peace of mind about your retirement. It is also worth figuring out
how much Social Security benefit you may receive
. This will help you get a better idea of your income will be when you retire.
Remember bookmark the 401(K) savings calculator. You can save it to your bookmarks or the home screen of your smartphone. You can return as you get a raise or increase your deposits. If you found this page useful, you can promote us on social media and encourage smarter retirement planning.