401(k) Calculator
Calculate 401(k) growth with employer matching, contribution limits, and investment return projections to plan your retirement savings.
Formula
FV = PV(1+r/12)^n + (PMT + Match)(1+r/12)^n-1)/(r/12)
Projects 401(k) balance at retirement with employer match and compound monthly growth. 2024 contribution limit: $23,000 ($30,500 if 50+).
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal: SI = P × r × t. Compound interest is calculated on the growing balance — each period's interest is added to the principal before the next period is calculated. The formula is A = P(1 + r/n)^(nt), where n is compounding frequency. On a $10,000 investment at 8% over 20 years, simple interest yields $26,000 while annual compounding yields $46,610 — a 79% difference. More frequent compounding (monthly vs. annually) further accelerates growth, which is why high-yield savings accounts advertise APY (annual percentage yield) rather than the nominal rate.
What is the Rule of 72?
The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual interest rate to get the approximate number of years. At 8% annual returns, your investment doubles in about 9 years.
How does inflation affect investment returns?
Inflation silently erodes purchasing power even when your nominal balance grows. If your portfolio earns 8% annually but inflation runs at 3%, your real return is approximately 4.85% (calculated as (1.08 ÷ 1.03) − 1), not simply 5%. Over 30 years, $100,000 at 8% nominal grows to $1,006,266, but in today's purchasing power it is worth only $413,000 in a 3% inflation environment. This is why bonds yielding 4-5% in a 4% inflation period offer almost no real growth. Equities have historically returned 6-7% above inflation over long periods, making them essential for preserving real wealth.
What is dollar-cost averaging?
Dollar-cost averaging (DCA) means committing a fixed dollar amount — say $500 per month — into an investment on a set schedule, regardless of whether markets are up or down. When prices fall, your fixed amount automatically buys more shares; when prices rise, it buys fewer. This lowers your average cost per share over time versus trying to time the market. DCA also removes emotion from the decision, preventing panic selling or over-buying at peaks. Studies show most individual investors who try to time the market underperform a simple DCA strategy, largely due to behavioral biases. It is especially effective for volatile assets like equities or index funds.
What is the difference between a traditional and Roth retirement account?
Traditional 401(k) and IRA contributions reduce your taxable income today — a $6,500 contribution in the 22% bracket saves $1,430 in taxes immediately — but all withdrawals in retirement are taxed as ordinary income. Roth accounts accept after-tax contributions with no upfront deduction, but qualified withdrawals (age 59½+, account held 5+ years) are completely tax-free, including all growth. If you expect to be in a higher tax bracket in retirement than today, Roth wins. If you expect lower rates in retirement, traditional wins. Many advisors suggest holding both types to give yourself tax flexibility when withdrawing. Roth IRAs also have no required minimum distributions (RMDs), unlike traditional accounts.
What is asset allocation and why does it matter?
Asset allocation is how you divide a portfolio among stocks, bonds, cash, real estate, and other asset classes. Research by Brinson, Hood, and Beebower found that over 90% of a portfolio's long-term return variability is explained by asset allocation, not individual security selection or market timing. A common starting rule is to hold (110 minus your age)% in equities and the rest in bonds — so a 35-year-old would hold 75% stocks. As you approach retirement, shifting toward bonds and cash reduces volatility but also expected returns. Rebalancing annually back to target weights systematically forces you to sell high and buy low.