401K Retirement Calculator

A 401K is a retirement savings plan sponsored by an employer. It allows workers to save and invest a portion of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account. Many employers offer to match a portion of an employee’s contributions, which can significantly boost retirement savings. The money in a 401K account is invested in a range of assets like stocks, bonds, and mutual funds, allowing it to grow over time through compound interest.

Financial experts generally recommend contributing at least enough to get the full employer match, as this is essentially free money. Beyond that, aim to save 10-15% of your income for retirement, including any employer match. If you’re starting late, you may need to contribute more. The IRS sets annual contribution limits, which for 2025 is $22,500 for those under 50 and $30,000 for those 50 and older (including catch-up contributions).

Traditional 401K contributions are made with pre-tax dollars, reducing your current taxable income, but you pay taxes when you withdraw the money in retirement. Roth 401K contributions are made with after-tax dollars, so you don’t get an immediate tax break, but qualified withdrawals in retirement are tax-free. The choice between them depends on whether you expect to be in a higher or lower tax bracket in retirement compared to your current tax bracket.

You can begin withdrawing money from your 401K without penalty after age 59½. Withdrawals before this age typically incur a 10% early withdrawal penalty in addition to income taxes. However, there are some exceptions for hardship withdrawals, such as medical expenses, purchasing a first home, or educational expenses. Some 401K plans also allow loans against your balance, but this should be carefully considered as it reduces your retirement savings growth.

When you change jobs, you typically have several options for your 401K: leave it with your former employer, roll it over to your new employer’s 401K plan, roll it over to an IRA, or cash it out (not recommended due to taxes and penalties). Rolling over to an IRA often provides more investment options and control, while rolling to a new employer’s plan might offer convenience and loan options. Cashing out should be a last resort as it significantly impacts your retirement savings.