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How to use Credit Karma’s 401(k) calculator
If you’re trying to save for retirement, having a 401(k) may be an important part of your retirement savings plan. A 401(k) is an employer-sponsored retirement plan that allows you to invest a portion of your pre-tax earnings into long-term investments like mutual funds.
Our 401(k) calculator can help you determine how much money you may be able to save by the time you retire. But keep in mind that it can only give you an estimate based on the information you provide. Your actual balances at retirement may be affected by certain factors not included in the calculator, such as a change in your job, income, retirement age or adjustments to your 401(k) plan.
To get started with the 401(k) calculator, you’ll need to enter the following information:
- Annual salary
- Estimated annual salary increase
- Your contribution toward your 401(k)
- How old are you?
- At what age do you want to retire?
- What is your current 401(k) balance?
- Estimated annual rate of return
- Payment periods per year
- Employer match (percentage of contribution)
- Employer match ends (percentage of your salary)
This is your current annual income, before taxes.
Estimated annual salary increase
Try to estimate how much your salary may increase each year through your last working year before you plan to retire.
Your contribution toward your 401(k)
This is the percentage of your pre-tax paycheck that you’re contributing to your 401(k).
How old are you?
Enter your current age.
At what age do you want to retire?
This is the age at which you’re planning to retire.
What is your current 401(k) balance?
This is the balance in your current 401(k) account, plus any 401(k) accounts you may have from previous jobs.
Estimated annual rate of return
Since 401(k) contributions are typically invested in mutual funds or other securities, they have the ability to grow over time. This field asks for the percentage amount your investments are expected to grow in a given year, known as the rate of return. If you’re not sure, you may be able to check with your 401(k) administrator.
Payment periods per year
This is the number of times you get a paycheck each year. Select the option that matches your pay schedule.
If your company matches your 401(k) contribution, enter the amount here.
Employer match ends
Enter the percentage cut-off point.
How does a 401(k) work?
A 401(k) is a retirement savings plan that’s typically set up by your employer. Generally, you get to decide whether you want to take part, how much you want to contribute and how to invest.
Each pay period, money is deducted from your paycheck and put into your 401(k) account. These contributions are pre-tax — meaning they’re not subject to federal withholdings and don’t count as taxable income.
Advantages of a 401(k)
If you’re considering signing up for your company’s 401(k), here are two key advantages.
- Pre-tax income — A major advantage of a 401(k) can be the ability to save for retirement without needing to pay taxes on the money you’re setting aside. You typically only pay taxes on this cash once you begin receiving distributions. And since you’ll likely be retired, your income may be a lot less than it is now, and you may pay a lower tax rate on the money.
- Employer matching — Some employers may offer to match your contributions up to a certain amount. For example, they may contribute 50 cents for every dollar you put in, up to 6% of your salary. This is essentially free money your employer offers that can help you save for retirement.
How much should I contribute to my 401(k)?
Generally, it’s a good idea to contribute the maximum amount allowed to your 401(k). And according to the IRS, this is $20,500 for 2022. But if you combine your contributions with your employer’s match, the total can’t exceed 100% of your salary or $61,000, whichever is less.
If you’re turning 50 this year, or if you’re already older than that, you’re allowed to make “catch-up” contributions as well. This amounts to an additional $6,500 in 2022 for most plans. In this case, your total limit after employer matching would be $67,500.
But, if you can’t contribute the maximum amount, it’s a good idea to just try to contribute what you can. You can always increase the amount if your financial situation changes.
Who qualifies for a 401(k)?
If your employer offers a 401(k) plan, it’s a good idea to find out when you’ll be eligible to participate. While some employers may let you sign up when you join the company, others might have a waiting period.
Some employers might automatically enroll you, but don’t worry, you can always opt out if you don’t want to participate. There may also be minimum age requirements, depending on the plan.
What else to consider with a 401(k)
There are a few other important things to keep in mind when it comes to 401(k) plans. Let’s take a closer look.
- Early-withdrawal restrictions — Generally, you won’t be able to take money out of your 401(k) before age 59 ½ without facing a penalty — though you may be able to borrow from your 401(k) without penalty. After you reach that age, you can begin accessing your savings. You may get a lump sum payment or periodic payments depending on your type of plan. And you’ll only pay taxes on your 401(k) once you take distributions.
- Rollovers — If you leave your job, you may need to roll over your 401(k) into a new retirement plan or else you could face taxes and penalties if you haven’t reached 59 ½ and try to withdraw the funds.
Distributions — Once you retire or reach age 72, you’re required to begin taking distributions from your 401(k). The required minimum distribution is typically based on your age and the balance of your 401(k). But the rules can be different if your spouse is the 401(k)’s sole beneficiary and they’re 10 or more years younger than you. You can use these worksheets from the IRS to learn more. You’re allowed to take out more than the required minimum.
Planning for retirement
In addition to having a 401(k), it may be a good idea to look into some other retirement savings options. You can check out our guide to retirement. Or, consider meeting with a financial adviser who may be able to help you figure out the best plan for your financial situation.