401k Calculator

Maximizing Your 401(k)

A 401(k) is one of the most powerful tools for building retirement wealth, primarily due to the employer match and tax advantages.

Key Strategies

• Get the Full Match: If your employer matches up to 3% or 5% of your salary, ensure you contribute at least that much. That is an instant 100% return on your investment.
• Increase Annually: Try to increase your contribution rate by 1% each year, or whenever you get a raise. You likely won't notice the difference in your paycheck, but your future self will thank you.

Understanding Vesting

Vesting refers to your ownership of the money contributing by your employer. While your own contributions are always yours, employer matches often vest over a period of 3-5 years. If you leave the job early, you may forfeit some of these matched funds.

Contribution Limits (2024 & Beyond)

The IRS limits how much you can contribute. For 2024, the limit is $23,000. If you are age 50 or older, you can contribute an additional $7,500 as a catch-up contribution. These limits typically adjust for inflation every year or two.

Traditional vs. Roth 401(k)

Many employers now offer both options:

• Traditional 401(k): Contributions are pre-tax (lowering your taxable income now), but withdrawals in retirement are taxed as ordinary income. Best if you expect to be in a lower tax bracket later.
• Roth 401(k): Contributions are after-tax (no immediate tax break), but withdrawals in retirement are 100% tax-free. Best if you expect tax rates (or your income) to rise in the future.

What Happens When You Change Jobs?

You typically have four options with your old 401(k):

1. Leave it in the old employer's plan (if allowed).
2. Roll it over into your new employer's plan.
3. Roll it over into an Individual Retirement Account (IRA) - often the best choice for lower fees and more investment options.
4. Cash it out (Don't do this! You will likely pay income tax plus a 10% penalty).