Are you curious about how much money you need to save for retirement? Do you want to know how much income you can withdraw from your 401k each year? If so, you’re in luck! We have a free 401(k) calculator to help you figure out all those things and more. This calculator is easy to use, will provide helpful information to help you plan for retirement, and applies to traditional, SIMPLE, Solo, and Roth 401(k) plans.
- 401k Calculator
- 401k Withdrawal Calculator
- How Much Will My 401K Pay Me Per Month?
- What Is A Defined Contribution Plan?
- 401(k) Contributions
- 401k Withdrawal Rules
- 401k Early Withdrawal Exceptions
- Do I Pay Taxes On 401(k) Withdrawals?
- Is A 401k The Best Retirement Savings Plan?
- Next Steps
- Request A Quote
- Frequently Asked Questions
- Related Reading
The 401(k) calculator can be a useful tool for estimating your retirement savings. By inputting retirement savings, employee contributions, and the annual compound rate, it can estimate your 401(k) balance at retirement age. This can help you plan for retirement and make sure you have enough saved. However, it is important to note that the calculator is mainly intended for use by U.S. residents.
401(k) Calculator Definitions
Percent to contribute
Every year, the percentage of your annual salary you contribute to your 401(k) plan is deducted. The 2022 IRS annual max contribution limit is $20,500. If you are 50 or over,’catch-up’ allows additional yearly contributions of $6,500. Employer contributions are not calculated in toward the IRS yearly limit.
If you are classified as a “Highly Compensated Employee” and your employer’s 401(k) participation, additional limits may be applied to you. These increased contribution limits come into effect if your salary is projected to reach $135,000 in 2022 or $130,000 in 2021. To see if these changes apply to you, it is best to contact your employer directly.
This is how much money your employer pays you before taxes and other deductions. Your contribution and employer match are based on this amount, so don’t include any money you get from other sources.
Input your current age.
Age at retirement
At what age do you want to retire? This calculator assumes that no 401(k) contributions will be made in the year of retirement.
Current 401(k) balance
The amount of money you have invested or saved into your 401(k) account.
Annual rate of return
Your 401(k)’s annual compounded return rate. This calculator is based on the assumption that your deposits are made monthly and returns are compounded annually. However, the actual return largely hinges on your selected investments.
Annual salary increase
This calculator is designed to help you determine how much money you will need to retire based on your current salary and projected future earnings.
Your employer will match a percentage of the money you contribute to your 401(k) each year. This matching contribution is often capped, which means your employer will only match a certain amount of money that you contribute. For more information, read the definition of “Employer maximum.” Remember that employer contributions do not count towards the IRS annual contribution limit. However, matching contributions may be subject to a vesting schedule. To find out more, see your plan information.
Your employer will match a percentage of your salary up to this point, no matter how much you contribute.
401k Withdrawal Calculator
As retirement age approaches, many people start to worry about how they will withdraw from their retirement savings plan. One option that can provide peace of mind is an annuity with a guaranteed lifetime withdrawal benefit (GLWB).
An annuity is an insurance policy that guarantees to distribute a paycheck to you for the rest of your life, even after the 401(k) runs out of money. This can provide much-needed security in retirement, knowing that you will have a regular income stream no matter what happens with your other retirement savings. In addition, an annuity can help to automate the retirement withdrawal process for 401(k) plans, making it one less thing you have to worry about.
So, if you are approaching retirement age and are wondering how to best withdraw from your retirement savings, an annuity with a GLWB may be worth considering.
Note: You can purchase an annuity (with no tax penalties) with your 401(k), IRAs, retirement accounts, investments, and cash.
How Much Will My 401K Pay Me Per Month?
The table below compares how much in withdrawals you could receive from 401(k) accounts (and other savings accounts) by withdrawing income yourself, using a financial advisor, or using an annuity to automate the withdrawal process.
|Withdrawal Percentage||5.20% – 6.55%||4%||4%||4%|
|Can Income Increase?||Yes||Yes||Yes||Yes|
|Can Income Decrease?||No||Yes||Yes||Yes|
|How Long Will Money Last?||Lifetime||30 Years+||30 Years+||30 Years+|
|Annual Fees||0 – 1.50%||1% – 4%||1% – 4%||1% – 4%|
|Required Minimum Distributions||Yes/No||Yes||Yes||No|
|Death Benefit||Account Balance||Account Balance||Account Balance||Account Balance|
Example: A 60-year-old retiree starts withdrawing immediately from their $1 million portfolio, they would receive:
What Is A Defined Contribution Plan?
Defended Contributions plans refer to retirement plans where the employee contributes regularly. Often employees choose to contribute fixed percentages of their earnings to the accounts in the form of automatic withdrawals from their earnings directly from the employee. As the money accumulates in an employee’s pay, it earns interest on investments, and when retired, the money has turned into substantial nest eggs. This is my plan. There are no guaranteed investment returns in defined contribution plans (unlike defined benefit plans).
How Much Should I Contribute To My 401(k)?
Maxing the IRS annual contribution limit may not be the best idea. Employees’ annual contribution (at a minimum) should contribute, up to the employer match, if employers provide matching contributions. For example, if employer contributions are matching contributions up to 4%, contribute the employer maximum. This is because, when an employer offers a matching contribution, they essentially say that they will match whatever amount the employee contributes, up to a certain percentage of their annual salary. It’s free money.
This greatly benefits employees, as it effectively doubles their contribution. However, employees should be aware that they will not receive the employer’s matching contribution unless they contribute an equal amount themselves.
Therefore, an employee’s best interest is to contribute at least the amount that their employer will match. Doing so will ensure that they receive the full benefit of the employer’s contribution.
A 401(k) match is an employer’s contribution to an employee’s 401(k) plan based on a percentage of the employee’s annual salary. For example, an employer might match 50% of an employee’s contribution up to 8% of their annual salary.
This employer contribution is usually a percentage of the employee’s salary up to a certain limit. To receive the employer match, employees must make their own contributions to their 401(k) plans.
One should note employer contributions are not a requirement.
Although 401(k)s are designed to provide employees with a retirement savings plan, some employers require a vesting period to incentivize employees to stay long-term.
Vesting refers to how much of the 401(k)’s employer contributions are owned by an employee. A fully vested employee fully owns the funds in their retirement savings accounts.
Unlike employer matches, employee contributions are always 100% vested.
The most common vesting schedule is four years, with 25% vesting after the first year, 50% after the second year, 75% after the third year, and 100% after the fourth year. This means that if an employee leaves before they are fully vested, they will forfeit any unused employer contributions. Vesting periods can be useful for employers to retain talented employees, but they can also be frustrating for workers who change jobs frequently.
Individual investors may choose from various investment portfolios in their 401(k) plan depending on the investment companies. These vary between mutual funds, index funds, and exchange-traded funds, all of which feature a variety of equities, bonds, international market equities, treasuries, and other securities. There are several advantages and disadvantages to each.
- Over time, the options typically associated with a slow and steady asset increase are common. However, some prefer automated portfolios that adjust risk exposure to market volatility based on the projected retirement age.
- If your qualified retirement plan is set up in a specific way, you can use your retirement funds to invest in individual stocks. If plan administrators permit, investors can transition an employer plan to a self-directed 401(k) or roll a 401(k) into another retirement account like an IRA.
- Each option has distinct benefits and drawbacks that investors should consider before making any decisions. For example, self-directed 401(k)s may provide more investment choices but require greater responsibility regarding monitoring asset allocation and performance.
- Similarly, rolling over a 401(k) into an IRA may offer more flexibility in how the money is invested but may also come with additional fees.
Ultimately, it’s important to weigh all the options carefully before deciding what’s best for your individual circumstances, and remember investing involves risk.
401k Withdrawal Rules
The IRS allows penalty-free withdrawals from retirement accounts after age 59 ½. Withdrawals taken before age 59 ½ will be subject to an additional 10% tax (early withdrawal penalty).
If no withdrawals are taken, the IRS requires withdrawals after age 72. (These are called required minimum distributions, or RMDs.)
401k Early Withdrawal Exceptions
401k hardship withdrawals
If you’re experiencing financial hardship, you may be able to take money out of your 401k plan. This is called a hardship withdrawal. In some cases, education expenses can qualify as a hardship. However, this will depend on the regulations set forth by your 401k plan administrator. It’s important to be aware of what is and isn’t allowed under your specific plan before taking any action. Some providers do not allow for any form of hardship withdrawals whatsoever.
Hardship withdrawals are when you take money out of your 401k before you turn 59 ½. Usually, if you do this, you will have to pay a penalty. There are a few exceptions, but education expenses usually aren’t one of them.
Medical expenses or insurance
Similarly, a 401k withdrawal penalty is likely waived if unreimbursable medical expenses exceed 7.5% of your adjusted gross income for the year.
If a court requires that you provide money to someone after a divorce, such as children or dependents, the 10% penalty can be avoided.
Series of substantially equal payments
If you have to pay a penalty for withdrawing money from your 401k, you can avoid the penalty if you take a 72t early distribution. This means that you can take out money from your retirement account in annual payments based on your current age and the size of your retirement account.
The periodic payments must continue for five years or until age 59 ½, whichever occurs last. Your distribution will be calculated and exact, even if you don’t need the money.
Some distributions are exempt from the early withdrawal penalty if you’re a qualified military reservist who’s been called to active duty.
Separation of Service
Another way to avoid the 401(k) penalty is if you leave your government job during or after the year. You can leave without being penalized if you are 55 years old or older.
If the 401(k) owner becomes totally and permanently disabled, the 10% additional tax will be waived.
Do I Pay Taxes On 401(k) Withdrawals?
401(k) plans offer several tax benefits that can help you to save for retirement. One of the primary tax benefits is that your 401(k) balance can grow on a tax-deferred basis. This special tax treatment means that you won’t pay taxes on your account balance until you withdraw income from the plan, which applies to employee and employer contributions. However, you can not withdraw from the account until age 59 1/2 without paying an early withdrawal penalty. The tax benefits of 401(k) plans can help you to save more money for retirement.
Is A 401k The Best Retirement Savings Plan?
The 401(k) employee savings plan is a staple in retirement planning, but there are negatives to consider.
- One of the biggest disadvantages is that your annual contributions are made with pre-tax income, which means you’ll ultimately owe taxes on the money when you withdraw it in retirement.
- Another drawback is that annual contribution limits are relatively low, making saving as much as you need difficult.
- Finally, a lot of guesswork is involved in planning for retirement with a 401(k), as it’s difficult to know how much you’ll have accumulated by the time you retire.
Annuities can correct these shortcomings and help provide a secure retirement. Annuities also have the potential to mimic the employer match with a premium bonus (up to 20%) that’s often offered with a 401(k) retirement plan, making them an even more attractive option.
What happens when you’re ready to start taking distributions from your 401(k)? Anyone older than 59 ½ can begin receiving distributions from their 401(k)s, but they can also choose to defer receiving distributions to allow more earnings to accumulate. Distributions can be deferred, at the latest, until the age of 72 (Required Minimum Distributions). Between the ages of 59 ½ and 72, participants have several options: they can take regular distributions, set up a systematic withdrawal plan, or leave their account untouched. Each option has its own pros and cons, so it’s important to understand all of your choices before making a decision.
When it comes to distributions from a 401(k) plan, there are two main choices: a lump sum or installments.
- With a lump-sum distribution, the entire amount is paid out at once. While this may be appealing for its simplicity, it has some downsides.
- For example, the money is no longer invested and thus is not subject to tax-deferred compounding.
- In addition, the distribution is taxed as income in the year it is withdrawn, which can be a significant amount.
- The installment option allows for periodic payments from the 401(k) plan. This type of distribution can be less appealing at first because it requires more planning and forethought. However, there are some advantages to consider as well.
- For example, with an installment plan, the money continues to be invested and subject to tax-deferred compounding.
- In addition, the payments can be spread out over time, which can help to minimize the impact of taxes.
- One of the hardest decisions when choosing an installment plan is how much to withdraw each month or year. Many elements come into play when considering retirement, such as life expectancy and investment performance. Others include how much money you will need to live comfortably and Social Security payments.
Roll It Over To An IRA
Roll over a 401k to an individual retirement account (IRA) or another employer’s plan. No taxes will be imposed on rollovers (non-Roth). Both Roth and traditional IRAs generally offer more investment options. Moving after-tax money into a Roth IRA can help diversify retirement portfolios. Keep in mind that traditional IRAs also require minimum distributions at age 72.
Use An Annuity For Systematic Withdrawals For The Rest Of Your Life
One option is to roll over to an IRA annuity. An IRA annuity is an insurance product that is offered through private insurance companies. No taxes will be imposed on conversions.
- The annuity will pay a guaranteed monthly benefit for the duration of the owner’s projected life expectancy.
- Joint-and-survivor annuities offer several benefits for retirees looking for income stability. This option significantly reduces the risk of financial instability in retirement by providing consistent monthly payments for the rest of the account owner and beneficiary’s expected lifetimes.
This option can provide a degree of financial security in retirement, as it can provide a steady stream of income that can last for many years with significantly lower risk.
Leave It Alone
Many people are unaware that they can postpone the distribution of their retirement funds until they reach the age of 72. By doing so, they can take advantage of the benefits of tax-deferred compounding for additional years. This can be a significant advantage, as it allows the funds to grow for longer. Furthermore, it can benefit those still working who want to delay taking distributions from their retirement accounts.
However, it is important to note that the government will require mandatory annual distributions starting at the age of 72 (unless you are still employed). This applies to traditional, SIMPLE, and SEP IRAs.
Use our free 401(k) calculator to estimate how much money you need to save for retirement. With just a few clicks, you can see how much income you can withdraw from your 401k each year and what steps you need to take now to ensure a comfortable retirement. Don’t wait until it’s too late. Start planning for retirement today with our easy-to-use financial calculators. Contact us now for a quote on retirement planning services.
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Frequently Asked Questions
How much should I have in my 401(k)?
Most financial experts agree that the ideal contribution percentage is between 15% and 20% of gross income.
How much does 401(k) contribution reduce taxes?
When you contribute to a 401(k), you are essentially putting money into a savings account for retirement that is not subject to income tax. That means your taxable income is reduced by the amount you contribute, and you will owe less in taxes as a result. For example, if your marginal tax rate is 22% and you contribute $10,000 to your 401(k), you avoid paying $2,200 in taxes.
How much will a 401K grow in 20 years?
Let’s assume you start with zero 401(k) retirement savings and earn a $100,000 annual salary. You save 10% of your salary and receive a 3% matching contribution from your employer. You also receive a 3% annual salary increase and can earn a 7% average annual return on the savings. You can modify these inputs based on your actual situation, including changing interest rate levels. You would build a 401(k) balance of $540,069 by the end of the 20-year time frame.
How much should you have in 401K to retire?
According to financial experts, you should aim to have six times your annual salary in a 401(k) account by age 50 and eight times your annual salary by age 60. By age 67, your total 401(k) balance should be ten times the amount of your current annual salary. So, for example, if you’re earning $100,000 per year, you should have $1,000,000 saved.
What is the average 401K balance for a 65-year-old?
The average 401(k) balance for a 65-year-old is $255,000.
How much does a person need in a 401K to retire at 55?
Employees should have enough money saved in a 401(k) to generate 75% of their pre-retirement annual salary. For example, if you earn $100,000 a year, you need to have enough saved to generate $75,000 annually. If you use an annuity to generate $75,000 a year starting at age 55, a 40-year-old will need $634,704 saved today, a 45-year-old will need $700,765, and a 50-year -old will need $992,079.
Does your 401K keep growing after you quit?
Yes, your 401(k) will continue to grow after you quit your job. The 401(k) will grow based on investment returns (mutual funds) and the annual compounded rate. The average annual compounded rate is determined by the mutual funds selected.
Is a Roth IRA or 401k better?
For most people, a Roth IRA is better than a 401(k) because withdrawals from a 401(k) are subject to income taxes, and Roth IRA withdrawals are tax-free.
Can I take all my money out of my 401k when I retire?
Yes, you can withdraw all your money from your 401(k). However, withdrawing money from your 401(k) before you reach age 59½ will result in a 10% early withdrawal penalty. In addition, the tax-deferred money that you withdraw will be subject to income taxes resulting in a hefty tax bill.
How much should I have in my 401k at 60?
Employees should have enough money saved in a 401(k) to generate 75% of their pre-retirement annual salary. For example, if you earn $100,000 a year, you need to have enough saved to generate $75,000 annually. If you are age 60, you will need $1,229,508 in your 401(k) to generate $75,000 a year for life, starting immediately. If you wait to retire at age 65, you will need $808,809 in your 401(k) at age 60.
Does a 401k grow if I stop contributing?
Yes, your 401(k) will continue to grow if you stop annual contributions to the defined contribution plan. The 401(k) will grow based on investment returns (mutual funds) and the annual compounded rate. The annual rate is determined by the mutual funds selected from the financial institution.
How much should I have in my 401k at 45?
Employees should have enough money saved in a 401(k) to generate 75% of their pre-retirement annual salary. For example, if you earn $100,000 a year, you need to have enough saved to generate $75,000 annually. If you use an annuity to generate $75,000 a year, a 45-year-old will need $618,489 to retire at age 60, $506,570 at age 65, and $457,498 at age 70.
How much should I have in my 401k at 55?
Employees should have enough money saved in a 401(k) to generate 75% of their pre-retirement annual salary. For example, if you earn $100,000 a year, you need to have enough saved to generate $75,000 annually. If you use an annuity to generate $75,000 a year, a 55-year-old will need $896,396 to retire at age 60, $617,505 at age 65, and $461,938 at age 70.
How long does $500,000 last in retirement?
If you retire with $500k in a 401(k), the 4% rule says that you should be able to withdraw $20,000 per year for a 30-year (or longer) retirement. So, if you retire at 65, the money should ideally last through age 95. However, an annuity will guarantee 5% or higher to last a retiree’s lifetime.