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401k Contribution Formula:
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A 401k contribution is the amount of money you elect to have deducted from your paycheck and deposited into your 401k retirement account. Contributions can be made on a pre-tax basis (traditional 401k) or after-tax basis (Roth 401k).
The calculator uses the following equation:
Where:
Explanation: The equation calculates how much will be deducted from each paycheck if you contribute a fixed percentage of your salary to your 401k.
Details: Regular contributions to a 401k account are crucial for retirement planning, taking advantage of employer matching (if available), and benefiting from tax advantages and compound growth over time.
Tips: Enter your annual salary in dollars and your desired contribution percentage. The calculator will show your estimated monthly 401k contribution amount.
Q1: What percentage should I contribute to my 401k?
A: Financial advisors often recommend contributing at least enough to get any employer match, and ideally 10-15% of your salary for retirement.
Q2: Are there annual contribution limits?
A: Yes, for 2023 the IRS limit is $22,500 ($30,000 if age 50+). Employer contributions don't count toward this limit.
Q3: How does employer matching work?
A: Many employers match a portion of your contributions (e.g., 50% of your first 6% of salary). This is essentially free money for your retirement.
Q4: What's the difference between traditional and Roth 401k?
A: Traditional 401k contributions are pre-tax (reduce taxable income now), while Roth contributions are after-tax (tax-free in retirement).
Q5: Can I change my contribution percentage?
A: Yes, you can typically adjust your contribution percentage at any time through your employer's benefits portal.