401(k) Calculator

Key Terms

These are the key terms and fields you should understand in order to make the most of this 401(k) calculator.

• Years: Enter the number of years remaining until your retirement.
• Current annual income: Enter your estimated annual pretax income.
• Annual salary increase: Estimate your average annual salary raise (in percentage terms) for the remaining years of your career.
• Pretax rate of return: The rate of return refers to how much, on average, the investment is expected to grow each year in percentage terms. Over the long run, United States stock market returns average approximately 10 percent annually before adjusting for inflation. Government bonds average around 5 percent annually.
• Current 401(k) balance: Input the current market value of your 401(k) investment portfolio.
• Pay period frequency: Select the frequency of your paycheck. The options are weekly, biweekly, monthly, semi-monthly and annually.
• Employee contribution: Enter the pretax percentage of your paycheck that you allocate toward your 401(k) plan.
• Employer match: Enter the percentage of your 401(k) contribution that is matched by your employer.
• Maximum employer match: Enter the maximum pretax percentage of your paycheck that your employer is willing to match in terms of 401(k) contributions.

What are the benefits of a 401(k) plan?

The benefits of employee retirement plans accrue to both employees and employers. From the employee’s perspective, these plans allow them to easily and automatically save for retirement. Tax benefits also come into play, as contributions are made on a pretax basis, reducing current taxable income. Additionally, employer matches provide a valuable source of “free” money for employees.

For employers, offering retirement plans is crucial for attracting and retaining talent, as employees increasingly expect access to such benefits. Retirement plans also play a role in workforce planning, ensuring financial preparedness for employees’ retirement. Oftentimes, these plans reduce employee turnover through vesting schedules tied to contribution matches, incentivizing employees to stay with the company.

What is the difference between a SIMPLE IRA and a 401(k)?

When deciding between a SIMPLE IRA and a 401(k), the size of the business is a crucial factor. For businesses with five employees or fewer, a SIMPLE IRA is recommended for its simplicity and the ease with which employers can manage it. However, for businesses in growth mode with more than five employees, a 401(k) plan is advisable. The 401(k) offers customization options, allowing for more effective management of expenses and diverse employee populations while also providing the maximum savings opportunity.

How do you choose a 401(k) plan provider?

When deciding on a retirement plan provider for your business, prioritize competitive pricing and a diverse range of investment options. Take into account important features suggested by experts, including the provider’s ability to handle administrative tasks, offer educational tools for retirement planning and easy online access for employees, and refrain from accepting kickbacks from mutual fund companies.

Consider a provider that is willing to send representatives for face-to-face meetings with employees, offers automation tools to streamline processes and has a mobile app for convenient access to retirement accounts via smartphones or tablets.