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Everything About 401(K) Calculator

Jul. 07, 2013 7:11 PM ET
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401(K) contribution is a provision offered by employers whereby an employee needs to make a contribution towards the retirement fund in order to receive the benefits. However, how much you contribute towards it must also be carefully planned to receive its complete benefits. If you make the complete contribution of $17,500, the maximum limit of 2013, or $23,000, which is the limit for 50 years or older aged employees, then you have paid the bulk of the contribution and effectively reduced the employer's share. The employer's contribution also differs between different organizations, some may offer 100% contribution and others less that 10%.

The 401 is a secure retirement planning tool, which provides you the additional advantage of tax deferrement. As the contribution is deducted from your untaxed salary, reducing your taxable income.

The 401 Calculator

The internet is flooded with calculators for 401 (k) contribution that will appropriately tell you how much you are likely to receive on retirement based on the amount of the contribution made. This will help you plan your investments accordingly. The calculator will have space for entering your:

  • Current 401 balance
  • Current annual income
  • Expected annual salary increase
  • The percentage of salary withheld for 401 invested:
    • Weekly
    • Every two weeks
    • Twice in a month
    • Every four weeks
    • Monthly
    • Quarterly
    • Annually
  • Employer match:
    • Weekly
    • Every two weeks
    • Twice in a month
    • Every four weeks
    • Monthly
    • Quarterly
    • Annually
  • Years of Fund 401
  • Average annual interest rate earned, compounded:
    • Daily
    • Monthly
    • Quarterly
    • Annually

Once you enter these details, the contribution is calculated directly and displayed. Some calculators also factor in your age, which is also an important component since there are different caps on the maximum contribution.

Borrowing from 401

An important provision of this plan is that you are allowed to borrow from the fund in case of an urgent requirement. In such as case, however, the value of the amount received on the retirement will reduce. The repayment happens through automatic payroll deduction and the loan has to be repaid within five years. In case you change your job in this duration, then you will have to repay the full balance within a short time or pay penalties and taxes. There are calculators available to assess the effect of borrowing from 401 too.

Points to Remember

Some important points to note are that the contribution calculated is made at the end of the period mentioned. Since IRS caps the maximum annual contribution, and your plan might have its individual lower limits based on your employer policy, which may even allow after tax contributions. Further, if you are classified as a highly compensated employee, you will have some additional caps that your company will have details about. Finally, the calculations are approximations of the value you enter and can only be used as a guide. You might experience fluctuations in returns on the basis of factors such as a change of job at a higher pay and so on.

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