Does your employer offer matching 401k contributions?

A majority of 401(k) plan participants say their 401(k) plan is their sole or largest source of retirement savings [1]. But how can you be sure you’re making the most of your employer retirement plan?

Results are not a complete assessment of all factors required to make a final decision. Contact one of our investment advisors for more complete information based on your personal circumstances

401k Calculator – Maximum Contribution to 401k

Rate at which returns in taxable accounts are taxed may impact results. Factors such as, but not limited to, type of tax deferred investment vehicles available, contribution limits, deductibility of contributions and early withdrawal penalties may impact results and determination in choosing the most appropriate tax-deferred investment vehicle.

Add value with 401k catch up contributions

If you’re 50 or older as of year-end, you’re eligible to make ‘catch-up’ contributions to certain tax-favored retirement accounts. Many people fail to capitalize on this opportunity and don’t realize the difference extra contributions can make in their retirement nest-egg.

If your employer’s retirement plan allows them, you can make extra contributions to your 401(k), 403(b), or 457 accounts beginning in the year you turn 50. Such contributions are subtracted from your taxable wages, so you effectively also get a federal income tax deduction. If you pay state income tax, you may also get a state tax deduction. Any tax savings can be used to help pay for your catch-up contribution or set aside in a taxable retirement savings account to further increase your savings.

Maximum catch-up contributions are considerably larger now than when they were introduced and offer an extra opportunity to save for retirement. At this time, catch-up contributions to 401(k), 403(b) and 457 plans are capped at $5,500. For traditional and Roth IRAs, they’re capped at $1,000. Going forward, catch-up contribution limits are indexed to inflation and will be adjusted in increments of $500 as needed.

401(k), 403(b), 457 accounts

If you contribute an extra $5,500 in the year you turn 50 and each year until age 65, you can accumulate quite a bit of extra money in your account. Look below to see how much additional money can be saved through catch-up contributions (before-tax numbers).*

  • 4% annual return: $114,534
  • 6% annual return: $135,698
  • 8% annual return: $161,283

 

IRAs & Tax Deductions

You can also make extra catch-up contributions to your traditional or Roth IRA. Contributions to traditional IRAs are tax-deductible if your income isn’t too high. Contributions to Roth IRAs aren’t tax-deductible, but you can make tax-free withdrawals after age 59½ if you’ve had at least one Roth account open five years or more.

If you contribute an extra $1,000 in the year you turn 50 and each year until age 65, you can accumulate quite a bit of extra money in your IRA. Look below to see how much additional money can be saved through catch-up contributions (before-tax numbers for a traditional IRA and after-tax numbers for a Roth IRA).*

  • 4% annual return: $20,824
  • 6% annual return: $24,672
  • 8% annual return: $29,324

 
Remember, your contributions to a traditional IRA or workplace retirement account benefit from tax-deferred earnings. So, even if your income is too high to deduct your contribution or contribute to a Roth IRA, you can benefit from tax-deferred growth. IRA contributions—catch-up or not—for any year are due by April 15 of the following year.

*interest compounded one time annually; contributions at start of compounding period

1 According to Schwab Retirement Plan Services

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. This information may help you analyze your financial needs. It is based on information and assumptions provided by you regarding your goals, expectations and financial situation. The calculations do not imply that the company assumes any fiduciary duties. The calculations provided should not be construed as financial, legal or tax advice. In addition, such information should not be relied upon as the only source of information and results are not a complete assessment of all factors required to make a final decision. This information is supplied from sources we believe to be reliable but we cannot guarantee its accuracy. Hypothetical illustrations may provide historical or current performance information. Past performance does not guarantee nor indicate future results. To the extent that any client or prospective client utilizes any calculator or similar device contained within or linked to Financial Engines’ website, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device, is not, and should not, be construed in any manner whatsoever as the receipt of, or a substitute for, personalized individual advice from Financial Engines. Contact one of our investment advisors for more complete information based on personal circumstances and to obtain personalized individual investment advice.