Your growth, year by year, and what if the return is different

I built this part so you can see the whole journey of your money, not just the headline number. The chart shows your balance rising year by year. The table below it is the year-by-year record: what you put in, what your employer put in, what growth added, and what you had at the end of each year. The scenario table shows what happens if the return comes in one point lower or one point higher than you assumed, because it never comes in exactly as assumed, and the difference over thirty years is not small. All three tables are illustrations at constant assumed returns, not predictions.

Year-by-year schedule

What if the return is different?

What a 401(k) is, in my words

I think of a 401(k) as a paycheque habit with a tax wrapper and, if you are lucky, a match. The habit is the important part. Every pay period, before the money reaches your bank account, a percentage of your pay is diverted into an investment account in your name, inside a plan run by your employer. You choose how it is invested from the options your plan offers, usually a menu of mutual funds, including target-date funds that adjust their mix as you age, and the money stays invested until you retire, change jobs, or withdraw it under the rules I explain later. The tax wrapper is what makes the habit cheaper than saving the same amount from after-tax pay. In a traditional 401(k), the contribution is generally excluded from your taxable wages for federal income tax, the money grows without annual tax, and you pay tax when you withdraw it. In a Roth 401(k), where your plan offers one, the contribution is made after tax, the money grows tax-free, and qualified withdrawals in retirement are tax-free. The match, where your employer offers one, is extra money your employer adds, on top of your contribution, according to a formula in the plan document.

The plan is named after the section of the Internal Revenue Code that authorises it, section 401(k), and it was not designed, originally, as the main retirement system for most Americans. It grew into that role as traditional pensions declined, and that history explains both its strengths and its gaps. Its strength is that it is automatic, portable in the sense that the money follows you when you change jobs if you roll it over, and tax-advantaged up to generous limits. Its gap is that participation is voluntary in most plans, the investment menu is limited to what your employer chose, and the quality of plans varies enormously, from low-cost plans with excellent funds to high-fee plans with poor options. I judge a 401(k) the way I judge any financial product: on the match, on the fees, on the investment options, and on whether the money actually goes in every pay period. The name on the plan matters less than those four facts.

I also want to be plain about what a 401(k) is not. It is not a pension. A pension promises you a defined monthly income for life, and the employer bears the investment risk. A 401(k) promises you an account, and you bear the investment risk, the longevity risk, and the risk of withdrawing too much too soon. That shift of risk is the central fact of modern retirement in the United States, and it is why a calculator like this one matters: nobody else is doing the arithmetic for you, so you must do it yourself, or with advice you trust. It is also not a savings account. The money is invested, its value rises and falls with markets, and taking it out early carries tax consequences that a savings account does not. And it is not the whole retirement plan. Social Security, an IRA, a taxable account, a pension if you have one, and any home equity you intend to use all sit alongside it, and this page covers the 401(k) piece in depth while pointing you to the retirement calculator for the whole-plan arithmetic.

Eligibility is the first practical question, and it is set by your plan, within federal rules. Most plans require you to be 21 and to have completed a period of service, commonly a year, although many plans are more generous, and some let you join immediately. Some plans auto-enrol you, which means contributions start unless you opt out, and I regard auto-enrolment as a good default that you should only override on purpose, not by accident. If you are part-time, seasonal, or a new hire, check your plan’s eligibility rules with your employer or your plan administrator, because the rules vary, and because waiting a year to join a plan with a match is waiting a year to collect money that will not be offered retroactively. Your contributions are always yours, in full, from the day they are made. Your employer’s contributions become fully yours on the plan’s vesting schedule, which I explain in its own section, and which is another reason to read the plan document rather than guessing.

Finally, I should say who this page is for. I wrote it for a United States employee who has access to a 401(k), or who is deciding whether to use one, and who wants to see, in numbers, what the contribution, the match, and time actually build. I use dollars throughout, I use the verified 2026 IRS limits, and where a rule depends on your plan document I say so. If you work for a nonprofit or a school and have a 403(b), or for a government and have a 457(b), much of this page applies to you, because the 2026 elective deferral limit of $24,500 is the same, but your plan has its own additional rules, and I flag the places where that matters rather than pretending the plans are identical.

The employer match: free money, and the formula that finds it

The employer match is the single most valuable feature of any 401(k), and I want you to understand its formula exactly, because the formula is where people lose money without realising it. A match is usually expressed in two numbers: the percentage of your contribution the employer matches, and the percentage of your salary up to which the match applies. A common formula is 50% of the first 6% of pay. That means the employer adds 50 cents for every dollar you contribute, on contributions up to 6% of your salary, and adds nothing on contributions above 6%. A second common formula is 100% of the first 3% of pay, plus 50% of the next 2%, which is a common safe-harbour design. A third is a flat non-elective contribution, where the employer puts in a percentage of your pay whether you contribute or not, often 3%. Every formula has the same shape: a rate, and a cap. The cap is where the money is lost, because contributing below the cap leaves match money unclaimed, and the unclaimed money is gone at the end of the year. It does not roll over.

I will work the common formula through with real numbers, because the numbers are what make it vivid. You earn $60,000. Your plan matches 50% of the first 6% of pay. If you contribute 6%, you put in $3,600 a year, and your employer puts in $1,800 a year, for a total of $5,400. Your contribution earned an immediate 50% return, before any investment return at all, and that return is guaranteed in the sense that the match, once contributed and vested, is yours. If you contribute only 3%, you put in $1,800, your employer puts in $900, and you leave $900 of match unclaimed every year. Over thirty years, that $900 a year, invested at an assumed 7%, would have grown to about $91,000. I do not give you that figure to make you feel bad about a past choice. I give it to you so that the next election you make, at the next open enrolment, is made with the full cost of contributing below the cap in view.

The calculator on this page models the match with the same two numbers: the match percentage, which is the percentage of your contribution the employer adds, and the match cap, which is the percentage of your salary up to which the match applies. At the defaults, a $75,000 salary, a 6% contribution, and a 50% match up to 6% of pay give $4,500 a year from you and $2,250 a year from your employer, or $562.50 a month going into the account in total. If you raise your contribution to 10% with the same match formula, your contribution rises to $7,500 a year, but the match stays at $2,250, because the match is capped at 6% of pay. If you lower your contribution to 3%, the match falls to $1,125. Try both changes in the calculator and watch the employer total in the results, because the employer total is the number that tells you whether you are claiming the full match. I calculate the match on your percentage contribution only, not on any catch-up top-up, because that is how most plans are designed, but your plan may differ, so check the plan document if the match is a large part of your decision.

Two cautions about the match, both worth your attention. First, the match is subject to vesting, which I explain in its own section. An unvested match can be forfeited if you leave before the vesting schedule is complete, so the match is not fully yours on day one in every plan. Your own contributions are always fully yours. Second, some employers make the match as a single annual true-up, or match per pay period with a true-up at year end, and the timing matters if you front-load your contributions and hit the IRS limit early in the year, because you may miss match money in the later pay periods unless the plan true-ups. If you plan to max out your 401(k), ask your plan administrator whether the match is true-upped, and spread your contributions across the year if it is not. The match is free money, but only if the mechanics of your plan actually deliver it, and the mechanics are in the plan document, not in the brochure.

This table is the match formula at work, at a 6% contribution and a 50% match up to 6% of pay, with no IRS limit in play. I include it because it shows the scale of the match in one glance: on a $100,000 salary, the match is $3,000 a year, every year, for as long as you contribute at least 6% and the formula stays in place. Over a career, the match, with growth, is often the difference between a retirement that works and one that does not, and it is the reason I put claiming the full match first in every priority order on this site.

How the balance grows: the maths, with the default numbers

The balance in a 401(k) grows by the same compound interest maths as any retirement account, with two additions: the employer match, which is a second contribution stream, and the annual limit, which caps your own contribution. I explain the maths here with the default numbers on this calculator, so that every figure in the results is one you can reproduce by hand.

At the defaults, you earn $75,000, you have $25,000 already saved, you contribute 6% of pay, your employer matches 50% up to 6% of pay, and the assumed return is 7% a year, compounded monthly, with no fees. Your contribution is $4,500 a year, or $375 a month. The match is $2,250 a year, or $187.50 a month. Together, $562.50 a month goes into the account. Over thirty years to age 65, your contributions total $135,000, the match totals $67,500, and the starting balance of $25,000 grows alongside them. The formula for the grown value is the same one I use on the retirement calculator page:

I want you to see the split, because the split is the story. Your own $135,000 is 15% of the final balance. Your employer’s $67,500 is 8%. Growth is 74%. The starting $25,000, grown for thirty years, is part of that growth story too, because it more than septuples at 7% over thirty years, to about $203,000 of the final total, before counting the contributions it sat alongside. I do not give you those proportions to minimise your own effort. I give them to you because they show why time matters more than any single year’s contribution, and why the match, which is a second contribution stream you do not fund, matters more than it appears to when you look at a single paycheque.

The scenario table shows the same maths at one point lower and one point higher. At a net return of 6%, the balance falls to about $715,604, and the monthly income estimate at the 4% rule falls to about $2,385. At a net return of 8%, the balance rises to about $1,111,720, and the monthly income rises to about $3,706. The range from $715,604 to $1,111,720, a spread of about $396,000, is the uncertainty in a single percentage point of return, sustained for thirty years. That is why I never quote a single projected balance without its neighbours, and why I ask you to plan around the lower figure. A plan that works at 6% works at 7%. A plan that only works at 8% is a hope, not a plan.

Two simplifications in my calculator deserve your attention, because they change the answer and I would rather you know them than discover them. First, I hold your salary flat unless you type a salary increase in the Advanced options. Real salaries usually rise, and rising salaries raise both your contribution and, usually, your match, so a flat salary understates the balance for most people. Type a salary increase of 2% or 3% and watch the balance rise, and use that reading as the more realistic one if your pay has risen steadily. Second, I cap your contribution at the 2026 IRS limit, held constant for the whole projection, and I cap total additions at $72,000 plus any catch-up. Real limits rise with inflation, so holding them constant understates what a high earner can contribute in later years, and it understates the catch-up room. I hold them constant deliberately, because inventing future limits would be dishonest, and because a projection that is slightly cautious is safer than one that assumes limits you do not yet have. I flag both simplifications here and in the calculator note, so that you use the result as a planning guide, not as a promise.

2026 contribution limits I verified, and how to use them

I verified the 2026 figures on this page against the Internal Revenue Service announcement, and I cite the source by name and date so you can check it yourself. On 13 November 2025, the IRS issued news release IR-2025-111, headed 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500, with the detailed cost-of-living adjustments in IRS Notice 2025-67. Those are the figures I use here, and they are the figures that govern contributions made for the 2026 tax year. If you are reading this in a later year, do not use these figures. Check the IRS announcement for that year, because the limits are adjusted annually for inflation and they move. The 2027 limits had not been announced in the IRS material I checked in late October 2026.

The 2026 elective deferral limit for 401(k), 403(b), most governmental 457(b) plans, and the federal Thrift Savings Plan is $24,500, up from $23,500 in 2025. That limit covers your own pre-tax and Roth contributions combined, per person, across all such plans. You cannot put $24,500 into each plan you hold. If you change jobs mid-year, your deferrals at both employers count toward the one limit, and payroll at the new job will not know what you put in at the old one, so you must track it yourself. The standard catch-up contribution for participants aged 50 and over is $8,000 for 2026, up from $7,500, bringing the total employee deferral to $32,500 for those aged 50 and over. Under the SECURE 2.0 Act, a higher catch-up applies to employees aged 60, 61, 62, and 63: for 2026 that higher catch-up remains $11,250, unchanged from 2025, bringing the total to $35,750 for those four ages. At 64, the catch-up falls back to the standard $8,000. The higher catch-up replaces the standard one for those ages, it does not add to it, and it applies only if your plan has adopted it, so confirm with your plan administrator before you change your election.

The overall limit on annual additions to a defined contribution plan, which is your contributions plus your employer’s contributions combined, is $72,000 for 2026, up from $70,000 in 2025, not counting catch-up contributions, which sit on top of it. The compensation that can be counted under a plan is capped at $360,000 for 2026, up from $350,000. The IRA limit for 2026 is $7,500, up from $7,000, with a catch-up of $1,100 for those aged 50 and over, up from $1,000, bringing the IRA total to $8,600 at 50 and over. I mention the IRA limit here because the 401(k) and the IRA are the two accounts most people hold together, and because the IRA limit is shared across all of your traditional and Roth IRAs combined. The income ranges for deductible traditional IRA contributions, for Roth IRA eligibility, and for the Saver’s Credit all rose for 2026 as well, and I do not reproduce those ranges here, because they depend on filing status and on whether you are covered by a workplace plan, and the IRS notice is the authoritative source for the range that applies to you.

How do I use these limits in practice? I use them as ceilings, not as targets, and I use them in the priority order I give later on this page: the full match first, then the IRA, then the 401(k) toward the deferral limit. Most people will not reach the $24,500 limit, and that is fine. The limit matters most in two situations: when you are a high earner who can afford to max out, and when you are using catch-up room in your fifties and early sixties, where the extra $8,000 or $11,250 a year, sustained for a decade, changes the final balance by six figures. To see the scale, contributing the full $24,500 a year for thirty years at an assumed 7%, from a zero balance, with no employer match at all, reaches about $2,490,774. That is the arithmetic of the maximum, and I give it to you as a ceiling, not as an expectation. Your own contribution percentage, your salary, and your match determine where you land below it, and the calculator shows you exactly where.

Sources for this table: IRS news release IR-2025-111, 13 November 2025, and IRS Notice 2025-67, the 2026 cost-of-living adjustment notice. I checked the super catch-up figure against the IRS statement that it remains $11,250 for 2026, and the 2025 comparisons against the same announcement. If any figure on this page differs from the IRS notice for your year, the IRS notice governs.

Catch-up contributions, the super catch-up, and the Roth catch-up rule

Catch-up contributions are extra contribution room the tax code gives to older savers, and they exist because the code recognises, correctly, that many people save little in their thirties and forties, when mortgages, children, and student debt compete for every dollar, and need room to save more in their fifties and sixties. I explain the three catch-up rules that apply in 2026, because they are easily confused, and because confusing them costs money.

The standard catch-up is $8,000 for 2026, for participants who are aged 50 or over by the end of the calendar year. It applies to 401(k), 403(b), most governmental 457(b), and Thrift Savings Plan participants, and it brings the total employee deferral to $32,500. The age test is by the end of the year: if you turn 50 in December, you have catch-up room for the whole year. The super catch-up, created by the SECURE 2.0 Act, is $11,250 for 2026, and it applies only to employees who are aged 60, 61, 62, or 63 during the year. It replaces the standard $8,000 catch-up for those four years, bringing the total to $35,750, and it falls back to $8,000 at 64. The super catch-up is the largest single-year deferral room the code has ever offered, and it is available for only four years, so I regard it as a window to use deliberately if you can afford to, not as a detail to discover at 64 when it has closed. Both catch-ups apply only if your plan has adopted them, and not every plan has, so confirm with your plan administrator, in writing, before you rely on the room.

In this calculator, the catch-up option in the Advanced panel works in a specific, stated way, and I want you to understand it before you use it. When you set catch-up to Yes, then from the year you turn 50, I add the full catch-up amount, $8,000, or $11,250 at ages 60 to 63, on top of your percentage contribution, and I cap the total at the IRS maximum for your age, $32,500 or $35,750, using the 2026 limits held constant. When you set it to No, I cap your contribution at $24,500 at every age. That is a simplification, and I flag it as one: in real life, you choose your catch-up amount each year, you do not automatically add the full amount, and the limits will rise with inflation. But the simplification shows you the value of the room clearly, and it lets you compare the two readings directly. Set the option to Yes and watch the balance rise in the years after 50, and then decide, with your own cash flow in view, how much of that room you will actually use.

The third rule is new for 2026, and it changes the tax character of catch-up contributions for higher earners. Under SECURE 2.0, from 1 January 2026, employees aged 50 and over whose prior-year FICA wages from the plan-sponsoring employer exceeded $150,000, based on 2025 wages, must make all of their catch-up contributions as Roth contributions, after tax, rather than pre-tax. The threshold is indexed for inflation, it is measured employer by employer, on FICA wages shown in Box 3 of Form W-2, not on total household income, and it applies to 401(k), 403(b), and governmental 457(b) plans. If your plan does not offer a Roth option, you cannot make catch-up contributions at all until the plan is amended to add one. I state this rule as it was announced for 2026, and I advise you to confirm with your plan administrator whether your plan has implemented it and how it applies to you, because implementation has varied, and because the rule is easy to miss until payroll tells you that your catch-up election has been changed.

My practical advice on catch-ups is simple. If you are 50 or over and you are not using the catch-up room, raise your contribution by 1% of pay each year, or by half of every pay rise, until you reach the room or the limit of what you can afford. If you are 60 to 63, treat the super catch-up years as a four-year window, and plan for them in advance, because the room is largest exactly when many people are at peak earnings and can most afford to use it. And if you are a higher earner affected by the Roth catch-up rule, do not treat the Roth character as a penalty. A Roth catch-up contribution is after-tax money that grows tax-free and comes out tax-free in retirement, and for a saver who expects to be in a similar or higher tax bracket in retirement, it may be the better deal anyway. The rule changes the timing of the tax. It does not remove the room.

Traditional or Roth 401(k)? The tax-rate bet, explained honestly

Most 401(k) plans now offer two flavours of contribution, traditional and Roth, and the choice between them is the most consequential tax decision most employees make, and the least well explained. I explain it here as a bet on tax rates, because that is what it is, and because framing it as a bet makes the uncertainty honest. A traditional contribution is generally excluded from your taxable wages for federal income tax in the year you make it, grows tax-deferred, and is taxed as ordinary income when you withdraw it. A Roth contribution is made after tax, grows tax-free, and comes out tax-free in retirement if the qualified conditions are met, which include the five-year rule and the age 59 and a half condition. The two flavours share the same $24,500 elective deferral limit for 2026, so you cannot put $24,500 into each. You split the limit between them as your plan allows.

The bet is this. If your tax rate in retirement will be lower than your tax rate today, the traditional account usually wins, because you deduct at the higher rate and pay at the lower one. If your tax rate in retirement will be higher than your rate today, the Roth usually wins, because you pay at the lower rate now and take the money out tax-free later. If the rates are the same, the two are roughly equivalent on the contribution itself, and the difference comes down to secondary effects: the Roth has no required minimum distributions during the owner’s lifetime for Roth 401(k) amounts, under SECURE 2.0 from 2024, and Roth withdrawals do not add to your taxable income in retirement, which can affect the taxation of Social Security benefits and Medicare premiums. Most people do not know their future rate, because it depends on future tax law, future income, future deductions, and future state of residence, none of which can be known with certainty. I do not pretend otherwise.

My approach, which I offer as a starting point and not as advice for your household, is to hold some of each, and to use the split deliberately. Early in a career, when earnings and tax rates are lower, I lean Roth, because the tax cost of paying now is low and the decades of tax-free growth are long. At peak earnings, when the marginal rate is highest, I lean traditional, because the deduction is worth the most. In retirement, I draw from the two accounts in proportions that manage the year’s taxable income, taking traditional withdrawals up to the top of a lower bracket and Roth withdrawals for spending above it, so that the overall tax bill is lower than it would be from either account alone. That flexibility, the ability to choose, year by year, which tax character to realise, is the underrated advantage of holding both types, and it is worth more, over a long retirement, than getting the initial bet exactly right.

Two details matter. First, the employer match is generally made on a pre-tax basis, even if your own contributions are Roth, so a Roth saver still has pre-tax money in the plan, in the form of the match and its growth, and that money will be taxed on withdrawal and will be subject to required minimum distributions. Your plan document and your annual statement will show the split. Second, the Roth catch-up rule I explained above can force the character of your catch-up contributions, regardless of your preference, if you are a higher earner. I do not regard that as a reason to avoid catch-ups. I regard it as a reason to understand, before you elect, which flavour your contributions will actually be, and to plan your tax bill accordingly. The calculator on this page does not model tax, traditional or Roth, because the tax depends on your whole return, not on the 401(k) alone, and I would rather show you the pre-tax balance honestly, with the tax treatment explained, than invent an after-tax figure that pretends to know your bracket.

Vesting, loans, and hardship withdrawals

Vesting is the schedule on which your employer’s contributions become fully yours. Your own contributions, and the growth on them, are always 100% yours, from the day they are made, and no vesting schedule can take them from you. Employer contributions, including the match, are subject to the plan’s vesting schedule, and if you leave before you are fully vested, the unvested portion is forfeited back to the plan. The two common designs are a cliff, where you become fully vested after a set period of service, and graded vesting, where your vested percentage rises each year until it reaches 100%. Federal rules set maximum periods for these schedules, and your plan document states the schedule that applies to you, including how service is counted and whether prior service with a related employer counts. I advise you to read that schedule before you make a job-change decision, because leaving a month before a vesting date can cost you thousands of dollars of match money, and leaving a month after it costs you nothing.

Loans from a 401(k) are a feature many plans offer, and I treat them with caution. A loan lets you borrow from your own account, usually with repayment through payroll deductions over a period set by the plan, and with interest paid back into your own account. The loan is not taxed when taken, provided it meets the legal limits and is repaid on schedule, but the limits are set by law and by the plan, the repayment period is limited, and if you leave your job, the outstanding balance is generally due much sooner, often by the tax filing deadline for the year of separation, and any amount not repaid is treated as a taxable distribution, with the 10% additional tax if you are under 59 and a half and no exception applies. The deeper cost is the one that does not appear on any statement: the borrowed money is not invested while it is out of the account, so it misses the growth it would have earned, and the repayments are made with after-tax dollars that will be taxed again when withdrawn in retirement, in a traditional account. I regard a 401(k) loan as a last resort, for a genuine emergency, after other borrowing has been considered, and I would never take one to fund spending that could be deferred.

Hardship withdrawals are different from loans, and I want you to keep them apart. A hardship withdrawal is a permanent distribution from the plan, for an immediate and heavy financial need, where the plan permits it, and it is taxed as ordinary income, with the 10% additional tax if you are under 59 and a half and no exception applies. The withdrawal cannot be repaid to the plan, and the money is gone from your retirement savings, with all of its future growth. SECURE 2.0 eased the administration of hardship withdrawals, including allowing self-certification of the need in many plans, and it added new distribution options for emergencies, disasters, and domestic abuse, which I list under the exceptions in the next section. But easing the paperwork does not change the economics. A hardship withdrawal is the most expensive way to meet a need, because it costs tax, it may cost the additional tax, and it costs decades of compounding. I advise you to treat it as the option of last resort, and to rebuild the contribution, at a higher rate, as soon as the emergency has passed, because the balance will not rebuild itself.

Taking money out early: the 10% additional tax and its exceptions

I state this rule plainly, because it is the rule that most often surprises people, and because the surprise is expensive. If you take a taxable distribution from a traditional 401(k) before age 59 and a half, you generally owe ordinary income tax on the distribution, plus an additional 10% tax on the taxable amount, under Internal Revenue Code section 72(t). The 10% is an additional tax, not a withholding rate, and it is reported on your tax return. For a Roth 401(k), the 10% additional tax generally applies to the earnings portion of a non-qualified distribution, not to your own contributions, which have already been taxed, although the ordering rules for Roth 401(k) distributions differ from those for Roth IRAs, and I advise you to check the treatment for your own account before you withdraw. The age is 59 and a half, not 59, and not 60, and the IRS applies it strictly. A distribution taken a month early is an early distribution.

The exceptions are real, and they are narrower than most people believe, so I list the main ones that apply to qualified plans such as a 401(k), in general terms, from the IRS guidance on exceptions to tax on early distributions and the Department of Labor’s small-plan guidance. Separation from service during or after the calendar year in which you reach age 55, commonly called the Rule of 55, exempts distributions from that employer’s plan from the 10% additional tax, although regular income tax still applies, and the exception does not apply to IRAs, or to a plan you rolled into an IRA, and, for certain public safety employees in governmental plans, the age is 50 rather than 55. Total and permanent disability exempts distributions. A series of substantially equal periodic payments, begun after separation from service and continued for at least five years or until age 59 and a half, whichever is longer, exempts distributions, but modifying the series early retroactively imposes the tax. Distributions to a beneficiary after the death of the employee are exempt. Distributions to an alternate payee under a qualified domestic relations order, in a divorce, are exempt. Distributions for unreimbursed medical expenses, up to the amount deductible as a medical expense, are exempt. And SECURE 2.0 added narrower exceptions for qualified birth or adoption expenses up to $5,000 per child, for federally declared disasters up to $22,000, for victims of domestic abuse up to the lesser of $10,000 or 50% of the vested balance, and for emergency personal expenses of up to $1,000 once a year, each with its own conditions and, in some cases, a right to repay the distribution. I list these amounts as the statutory limits in the IRS exception guidance, and I advise you to confirm the current conditions for your own situation, because the exceptions are fact-specific and the plan must permit the distribution in the first place.

The practical point is that the exceptions remove the 10% additional tax, not the income tax, and not the loss of compounding. A $20,000 early distribution from a traditional 401(k), for a saver in the 22% bracket, costs $4,400 of income tax plus $2,000 of additional tax, or $6,400 in total, leaving $13,600 in hand, before any state tax, and it removes $20,000 from an account that, at 7% over thirty years, would have become about $162,000. I give you that comparison not to frighten you away from a distribution you genuinely need, but to make the true cost visible before you take it. If the need is real, take the distribution under the exception that applies, claim it correctly on Form 5329 where required, and rebuild the saving. If the need can be met another way, meet it another way, because the cheapest distribution is the one you never take.

I also want to warn you about a related trap, the withholding trap. A taxable distribution paid directly to you is generally subject to mandatory 20% federal income tax withholding for eligible rollover distributions, which is a prepayment, not the final tax, and the final tax is settled on your return. A direct rollover to an IRA or to another qualified plan avoids the withholding and avoids the tax, because the money never reaches your hands. If you take a cheque, intending to roll it over within sixty days, the 20% withheld is missing from the cheque, and you must find that 20% from other funds to complete a full rollover, or the withheld portion is treated as a taxable distribution. I advise a direct, trustee-to-trustee rollover in every case, because it removes the withholding, the deadline, and the temptation to spend the money in the meantime, all at once.

Required minimum distributions, and the still-working exception

Required minimum distributions, or RMDs, are the minimum amounts you must withdraw each year from pre-tax retirement accounts, including a traditional 401(k), once you reach the applicable age, whether you need the money or not. The age depends on your birth year, under the SECURE 2.0 Act. If you were born from 1951 through 1959, RMDs start at age 73. If you were born in 1960 or later, they start at age 75. The first RMD is generally due by 1 April of the year after you reach the applicable age, and later RMDs are due by 31 December of each year, which means that delaying the first RMD to April creates two taxable distributions in one calendar year, a timing trap I want you to know about before you fall into it. The RMD amount is calculated from the prior year-end balance divided by a life-expectancy divisor from the IRS Uniform Lifetime Table, so it rises as a percentage of the balance as you age, and it is taxed as ordinary income.

The penalty for missing an RMD is steep, and SECURE 2.0 reduced it without making it small. The excise tax is 25% of the shortfall, reduced to 10% if the failure is corrected within the allowed window and reported on Form 5329. I state those figures as the law stood in late 2026, and I advise you to check current IRS guidance, because the correction window and the reporting requirements matter as much as the rate. Roth IRAs have no RMDs during the owner’s lifetime. Roth 401(k) amounts have no RMDs during the owner’s lifetime from 2024, under SECURE 2.0, which removed a long-standing reason to roll a Roth 401(k) into a Roth IRA. A qualified longevity annuity contract, or QLAC, held inside a retirement account is excluded from the RMD balance up to the IRS limit, which was $210,000 for 2026 under IRS Notice 2025-67, as I note on the annuity page, and QLAC income can start as late as age 85.

The still-working exception is the relief that matters most to people who work past the RMD age. If you are still working for the employer that sponsors the plan, you are not a 5% owner of the employer, and the plan permits it, you may delay RMDs from that employer’s plan until you retire. The exception does not apply to IRAs, including a traditional IRA you hold alongside the 401(k), and it does not apply to a 401(k) from a former employer. I state the exception in general terms because the plan must permit it, and because the 5% owner rule and the plan’s own terms decide whether it applies to you. If you are still working past 73, check with your plan administrator, in writing, whether the exception applies to your plan, and do not assume that it does. The distinction between the current employer’s plan and every other account is the distinction that determines whether you owe an RMD at all, and it is worth a single email to get right.

Changing jobs: rollovers, old plans, and the cash-out trap

Changing jobs is the moment when more retirement money is lost than at any other moment in a working life, not through market falls, but through cash-outs, forgotten accounts, and rollovers done badly. I explain the options here, in the order I would consider them, so that the next job change is an administrative event, not a financial one.

The first option is to leave the money in the old plan, where the plan permits it. That is often the simplest choice, especially if the old plan has low fees and good investment options, and it preserves the Rule of 55 exception for that plan if you separate from service at 55 or later, an exception that is lost if you roll the money into an IRA. The drawbacks are that you will have another account to track, another statement to read, and another beneficiary designation to keep current, and that some plans charge former employees higher fees or require a minimum balance to stay. The second option is to roll the money directly into the new employer’s plan, where the new plan accepts rollovers. That consolidates your accounts, keeps the money in a qualified plan, and preserves the still-working RMD exception for the combined balance if you work past the RMD age. The third option is to roll the money directly into an IRA, traditional or Roth according to the tax character of the money and any conversion you choose. An IRA usually offers a wider investment choice and lower fees than an employer plan, and it consolidates your accounts, but it loses the Rule of 55 exception, it is subject to RMDs from the applicable age with no still-working exception, and a Roth conversion in the same move is taxable and must be planned, not stumbled into.

The option I advise against, in almost every case, is the cash-out: taking the balance as a cheque, spending it, and starting again. A $30,000 balance, cashed out at 35, loses income tax and, usually, the 10% additional tax, and it loses thirty years of compounding, which at 7% would have made it about $243,000 by 65. The cash-out is sometimes unavoidable, when the balance is small and the plan forces it out, or when a genuine emergency leaves no alternative, but it should never be the default, and it should never be presented to you as the easy option without the cost being stated in full. If a plan forces out a small balance, roll it directly into an IRA, even if the amount feels too small to matter, because small amounts compound too, and because the habit of rolling over, rather than cashing out, is what preserves a career of saving across a career of job changes.

My practical checklist for a job change is short, and I suggest you follow it in order. First, before you leave, note the vesting schedule and the date on which the next vesting step falls. Second, note the plan’s rules for former employees, including any fee change and any forced-out threshold. Third, decide, before the last day, whether the money will stay, roll to the new plan, or roll to an IRA, and arrange a direct, trustee-to-trustee rollover, so that no cheque reaches your hands and no withholding applies. Fourth, update the beneficiary designations on every account you hold, old and new, because beneficiary designations govern retirement accounts ahead of a will, and a designation naming a former spouse is a mistake that no will can fix after death. Fifth, confirm, in writing, that the rollover arrived and was invested as you intended, because rollovers do fail, and a failed rollover discovered a year later is a tax problem, not a paperwork problem.

Fees: what a 1% charge does over thirty years

A fee of 1% a year sounds small. It is not small. It is charged on your whole balance, every year, for every year you save, and it compounds against you exactly as surely as a return compounds for you. I will show you the cost with the default numbers on this calculator, because the default numbers are the ones you have already seen. At an assumed 7% return with no fee, $25,000 plus $562.50 a month for thirty years becomes about $889,146. At the same 7% return with a 1% fee, the net return is 6%, and the same saving becomes about $715,604. The fee cost you about $173,542, which is more than the $135,000 you contributed yourself, and it cost you that much without ever appearing as a bill. It appeared as a smaller balance, quietly, every month, for thirty years.

Fees in a 401(k) come in several forms, and I want you to find all of them. An expense ratio is the annual cost of a fund, expressed as a percentage of assets, and it is deducted from the fund’s returns before you see them. A low-cost broad index fund may charge 0.03% to 0.20% a year. An actively managed fund may charge 0.50% to 1.50% a year. A target-date fund, which is the default investment in many plans, charges its own expense ratio, which may be low or high depending on whether it is built from index funds or from actively managed funds. A plan administrative fee, for recordkeeping and administration, may be charged as a percentage of assets or as a flat amount, and it may be paid by the employer, by the participant, or by both. An advisory fee, where the plan offers managed accounts or advice, is an additional percentage. None of these fees is illegitimate by itself. The question is always what you receive for it, and whether a cheaper alternative in the same plan gives you the same thing.

My test is the one built into this calculator. Type in your return, then type in the all-in fee as the fee input, and read the balance. Then set the fee to zero and read it again. The difference is what the fees cost you in final wealth, and the difference in the monthly income figure is what they cost you in retirement income, every month, for as long as the money lasts. In a 401(k), I check the fee for each investment option, not just the plan as a whole, because two funds in the same plan can differ by a full percentage point, and the expensive one rarely earns it. I check whether the plan offers a low-cost broad index fund or a low-cost target-date fund built from index funds, and I use those as the default, because they give me diversification at a price that leaves the compounding to do its work. And I check the plan’s fee disclosure, the document your plan must provide that lists the fees for each option, because the disclosure is the authoritative source, and because a fee you cannot find in the disclosure is a fee you should ask about, in writing.

I also want to warn you about a fee that is not a percentage: the fee of complexity. A plan with layers of charges, managed-account fees, and investment options you cannot explain back to me in two sentences is charging you for confusion, whether or not a line item says so. Simplicity has a return of its own, in the form of a plan you understand well enough to keep when markets fall. I prefer a simple, low-cost portfolio that I understand to a complex, expensive set of options that I do not, even when the complex set’s illustration looks better, because the illustration is a scenario and the fee is a certainty.

How much should I contribute? My priority order

I am asked how much to contribute more often than any other question about the 401(k), and I answer it with a priority order, not with a single percentage, because a single percentage cannot know your salary, your match, your debt, or your age. The order I use, and the order I suggest you use, is this. First, contribute enough to get the full employer match, whatever percentage that requires, without exception and without delay. The match is an immediate return that no investment can match, and leaving it unclaimed is the only mistake in this subject that is entirely avoidable and entirely your own. Second, pay off high-interest debt, because a credit card charging 20% or more is a guaranteed negative return that no investment can reliably beat, and because retirement saving while carrying high-interest debt is saving with one hand and borrowing with the other. Third, build a small emergency fund, enough to cover a month or two of essential spending, so that the next emergency does not become a 401(k) loan or a hardship withdrawal. Fourth, consider an IRA, traditional or Roth according to the tax-rate bet I explained above, up to the 2026 limit. Fifth, return to the 401(k) and raise the deferral toward the IRS limit, or the catch-up limit if you are 50 or over, as cash flow allows. Sixth, use a taxable account for anything beyond that, or for money you may need before 59 and a half.

The percentages that correspond to that order depend on your circumstances, but I will give you the rules of thumb I use as checks, not as targets. A total saving rate, counting your contribution, the match, and any IRA saving, of 15% of pay is the conventional starting point for a saver who starts in their thirties and retires at 65, and it is a reasonable first check on whether you are saving enough. A saver who starts at 40 needs a higher rate, in the region of 20%, and a saver who starts at 50 needs a higher rate still, in the region of 25% to 30%, or a later retirement age, or both. Those figures are rules of thumb, not laws, and they assume a balanced portfolio, a full match, and a retirement at 65. Your own figure comes from the method on the retirement calculator page: spending, minus guaranteed income, divided by 4%, fed into a calculator at a cautious return. Use the rule of thumb to check the method, and use the method to set the contribution. If the method says 22% and you can only afford 12% today, save 12% today, and raise it by 1% of pay each year, or by half of every pay rise, until you reach the method’s figure. The raise-by-half-of-every-rise rule is the painless way to reach a high saving rate, because your take-home pay still rises each year, just by a little less than it otherwise would, and you never feel the increase as a cut.

I also want to say something about the income estimate this calculator gives you, because it is easy to misread. The 4% rule translates a balance into a first-year monthly income, and I use it here as I use it on the retirement calculator page: as a yardstick from Bengen’s 1994 research and the Trinity Study of 1998, tested over thirty years on United States history, with a balanced portfolio and rigid inflation-adjusted withdrawals. It is not a promise that the income will last, and it is not a withdrawal plan. A real withdrawal plan considers taxes, RMDs, Social Security claiming, the order in which you draw from different accounts, and the flexibility to spend less after a bad market year. I give you the 4% estimate so that you can judge, in monthly income terms, whether the balance you are building is enough for the life you intend to live, and I give you the today’s-dollars balance alongside it so that you judge it against the prices of the year you retire, not the prices of today. If the estimate is short, you have three levers, and only three: save more, retire later, or spend less. The calculator lets you test all three, and I suggest you test them in that order, because saving more is the lever you control today.

Three worked examples I use

Example one: the default saver, 35 to 65

A 35-year-old earns $75,000, has $25,000 saved, contributes 6%, and receives a 50% match up to 6% of pay, at an assumed 7% return with 3% inflation. The calculator gives a balance of about $889,146 at 65, from $135,000 contributed by the saver and $67,500 from the employer, so growth is about $661,646. The 4% rule gives a first-year monthly income of about $2,964, and the balance is about $366,316 in today’s dollars. If the return comes in at 6% instead of 7%, the balance falls to about $715,604 and the monthly income to about $2,385. If it comes in at 8%, the balance rises to about $1,111,720 and the monthly income to about $3,706. The plan lives in that range, and the saver who knows the range is better prepared than the saver who knows only the middle number.

Example two: the saver who claims the full match late

A 40-year-old earns $60,000 and has been contributing 3%, receiving a $900 match a year on a 50% match up to 6% of pay, and leaving $900 of match unclaimed every year. At 40, she raises her contribution to 6%, claims the full $1,800 match, and continues to 65 at an assumed 7%. Over twenty-five years, the extra 3% of her own pay totals $45,000, the extra match totals $22,500, and the combined $67,500, with growth, adds about $182,000 to her balance at 65, compared with staying at 3%. I give this figure rounded from the same monthly compounding maths, and I want you to reproduce it in the calculator by comparing the two contribution percentages at the same salary and match. The lesson is that the match is not a small perk. It is a second contribution stream, and claiming it for twenty-five years is worth more, in final wealth, than most investment decisions you will ever make.

Example three: the high earner who maxes out, with catch-ups

A 50-year-old earns $180,000, has $200,000 saved, contributes the maximum, and uses the catch-up room, at an assumed 7% return. The employee deferral, with the $8,000 catch-up, is $32,500 a year, and the employer match, at a typical formula, adds several thousand more, subject to the $72,000 total additions limit and to the plan’s own formula, which I do not invent here. Over fifteen years to 65, the employee contributions alone total $487,500, and the balance, with growth on the starting $200,000 and on the contributions, exceeds $1,000,000 in the same monthly compounding maths. I give this example in rounded, ceiling terms deliberately, because the exact balance depends on the match formula, the fees, and the future IRS limits, none of which I can know for fifteen future years. The lesson is not the precise total. It is that the catch-up room, used in full for fifteen years, is the difference between a balance that is comfortable and a balance that is not, for a saver who starts the catch-up years behind, and that the room is largest exactly when earnings are usually highest.

Mistakes I see, and how I avoid them

The first mistake I see is contributing below the match cap. A saver contributes 3% when the match requires 6%, and leaves half the match unclaimed, every pay period, for years. I avoid it by setting the contribution to the full-match percentage on the first day I join the plan, before I get used to the higher take-home pay, and by treating the match percentage as the minimum contribution, not as a target to reach someday. If cash flow is genuinely tight, I contribute the full-match percentage and cut spending elsewhere, because the match is a 50% or 100% immediate return, and no spending cut can match it.

The second mistake is cashing out when changing jobs. A $30,000 balance, cashed out at 35, loses tax and, usually, the 10% additional tax, and it loses thirty years of compounding, which at 7% would have made it about $243,000 by 65. I avoid it by arranging a direct rollover before the last day, so that no cheque reaches my hands, and by treating a job change as an administrative event, not as a windfall. The rollover is paperwork. The cash-out is a decision that costs a quarter of a million dollars in future wealth, and it is made in an afternoon.

The third mistake is stopping contributions in a market fall. The balance drops, the news is frightening, and the saver pauses the contribution to wait for calmer times. That pause removes money from the market precisely when prices are lowest, and the contributions that are missed never compound. I avoid it by treating the contribution as a bill, paid automatically, before I see the money, and by remembering that a fall early in a saving career is a gift in disguise: the same monthly amount buys more, and the recovery, when it comes, compounds on a larger holding. The savers who do best are rarely the savers who pick the best funds. They are the savers who never stop.

The fourth mistake is the one I am most sympathetic to, because the industry encourages it: chasing last year’s best-performing fund, or the investment that a friend, a headline, or a social media account recommends. Performance chasing buys high and sells low, systematically, and it pays high fees for the privilege. I avoid it by holding a simple, diversified, low-cost portfolio, usually a target-date fund built from index funds or a small set of broad index funds, by rebalancing on a schedule rather than on a feeling, and by judging my plan on whether the contribution is going in, the match is claimed, and the fees are low, not on whether this quarter’s return beat some index. The plan is the portfolio. The portfolio is not the plan.

Glossary, in my plain language

Sources I relied on for the facts on this page: IRS news release IR-2025-111, 13 November 2025, headed 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500, and IRS Notice 2025-67, the 2026 cost-of-living adjustment notice for retirement plans and IRAs; the SECURE 2.0 Act of 2022, for the RMD ages, the super catch-up for ages 60 to 63, the Roth catch-up rule for higher earners from 2026, and the removal of RMDs for Roth 401(k) amounts from 2024; the IRS guidance on exceptions to tax on early distributions, Retirement Topics, Exceptions to Tax on Early Distributions, and the Department of Labor guidance on tax on early distributions, for the 10% additional tax and its exceptions; William Bengen, Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning, 1994, and Cooley, Hubbard, and Walz, the Trinity Study, 1998, for the 4% rule. Where I give a worked number, I label the assumptions, and I checked every worked number with the calculator above, at the stated assumptions. The 2027 limits had not been announced in the IRS material I checked in late October 2026, so this page uses the 2026 figures and tells you to check the IRS announcement for any later year. Social Security is covered in depth on its own separate page, and I refer to it here only as the guaranteed floor under a retirement plan, with no benefit table reproduced.

PayByCountry is an independent calculator website, not a government website and not a financial adviser. This page is an educational estimate tool for the United States. It is not financial, tax, or legal advice, and it does not recommend any product, fund, employer plan, or course of action. Projections are illustrations at constant assumed returns, not predictions or guarantees. Withdrawals before age 59 and a half may owe income tax plus a 10% additional tax, with exceptions that are fact-specific. Your plan document governs your own account, including eligibility, the match formula, vesting, fees, and withdrawal options. Tax rules change; check current IRS guidance for the year in which you act, and consider independent, fee-only advice before you make a major retirement decision.