What is a 401(k) and how does it work?
A 401(k) plan is a common retirement savings plan available to people in the US. Usually, a 401(k) is offered by employers as an employee benefit. When you sign up for a 401(k) plan, you are agreeing to a portion of your paycheck being paid into your 401(k).
There are many benefits associated with 401(k) plans. First, the money you contribute to a 401(k) is pre-tax, meaning you do not have to pay taxes on the amount you set aside. Another great benefit is that many employers match your contributions up to a certain amount.
Once you and your employer make regular contributions to your 401(k), you can decide how you want that money to be invested. Whether you select a more aggressive investment plan or a more conservative one is up to you.
How do I use the 401(k) calculator?
Enter your age, current balance, salary and contribution rate, then your employer match, expected raises, annual return and retirement age. The calculator works through each year, adds contributions monthly and shows your balance at retirement.
It applies the 2026 IRS limits, including catch-up contributions from age 50 and the higher catch-up from 60 through 63. It holds those limits flat in future years and treats your return as steady, so your real result will differ. The today's dollars figure assumes 2.5% yearly inflation, and the 4% rule figure is a common rule of thumb for retirement withdrawals, not a guarantee. Taxes on withdrawals are not included.
How much will my 401(k) pay me per month?
A 401(k) doesn't pay a set monthly amount. What you withdraw depends on your balance and your plan. Starting at age 73 for most people, you must take a required minimum distribution each year from a traditional 401(k).
Even if you start withdrawing money on your own before RMDs set in, the monthly amount you withdraw will vary. It’s best to keep your monthly withdrawal amount as modest as possible so that your funds can last as long as you need them to. You can withdraw as much as you want but withdrawing roughly 4% of your balance each year is a good rule of thumb.
What is the difference between a 401(k) and a Roth IRA?
The main differences between a traditional 401(k) and a Roth IRA have to do with how the two accounts are taxed. Both of these terms refer to common retirement savings accounts, but with a traditional 401(k), you are taxed on the money you withdraw. Since you don’t pay taxes on the money you put in, the amount you have to invest is higher and can lead to larger gains over the lifetime of your account.
With a Roth IRA, the money you add to the account is post-tax, meaning you’ll pay taxes on it now. If you are fairly young, it is probably safe to assume that you are in a lower tax bracket now than you will be when you retire, so you’ll pay less money in taxes this way.
Both have pros and cons, and many people choose to open both accounts so they can enjoy the benefits that come with each.
How does my 401(k) earn money?
The balance in your 401(k) will grow even if you stop adding money to it because it is a type of investment account. Your balance does not just sit there and wait for you to retire.
Instead, you choose how to invest your account balance and build on your account balance that way, too. Since you and your employer make monthly contributions, and your balance grows due to investments, 401(k)s have a TON of growth potential over time.
What are the yearly 401(k) contribution limits?
The Internal Revenue Service (IRS) sets contribution limits on a yearly basis and publishes them online. For 2026, most people can contribute up to $24,500. If you are 50 or older, you can add a catch-up contribution of $8,000, or $11,250 if you are 60 through 63.
There is also a limit on what you and your employer can contribute together, which is $72,000 for 2026 before catch-up contributions.
How much of each paycheck should go to my 401(k)
Generally setting aside 15% of your income for retirement is a good benchmark. This 15% is a combination of all your retirement account contributions, as well as your employer match. If your employer will match up to 6% income for retirement, you should max out that benefit.
If you contribute 6% to your 401(k) and your employer matches your contribution, also putting in 6%, then you’re almost to the total goal of 15%. By increasing your contribution by just a few percentage points, you can hit the target savings percentage.