
401(k) Savings Calculator
A 401(k) can be one of your best tools for creating a secure retirement. It
provides you with two important advantages. First, all contributions and
earnings to your 401(k) are tax deferred. You only pay taxes on contributions
and earnings when the money is withdrawn. Second, many employers provide
matching contributions to your 401(k) account which can range from 0% to 100%
of your contributions. The combined result is a retirement savings plan you can
not afford to pass up.
Definitions
 Annual salary
 This is your annual salary from your employer before taxes and other
benefit deductions. Since your contribution and company match are based on the
salary paid to you by your employer, do not include any income you may receive
from sources other than your employer.
 Percent to contribute
 This is the percentage of your annual salary you contribute to your 401(k)
plan each year. Most employers permit employees to contribute up to 15 percent
of their salary to a 401(k).
 Annual contribution limits
 Your total contribution for one year is based on your annual salary times
the percent you contribute. However, your annual contribution is also subject
to certain maximum total contributions per year. The annual maximum for 2005 is
$14,000. This amount will increase in 2006 to $15,000. If you are over 50, a
new "catchup" provision allows you to contribute even more to your
401(k). In 2005, employees over 50 can deposit an additional $4,000 into their
401(k) account. It is also important to note that employer contributions do not
affect an employee's maximum annual contribution limit. The table below lists
the maximum contributions and catchup contributions for each year through
2006.
Year

Employee Contribution
limit

Additional
"catchup" contributions for workers 50+

2003

$12,000

$2,000

2004

$13,000

$3,000

2005

$14,000

$4,000

2006* and after

$15,000

$5,000

It is important to note that some employees are subject to another form of
contribution limitations. Employees classified as "Highly
Compensated" may be subject to contribution limits based on their
employer's overall 401(k) participation. If you expect your salary to be above
$95,000, you may need to contact your employer to see if these additional
contribution limits apply to you.
Current age
 Your current age.
 Age of retirement
 Age you wish to retire. This calculator assumes that the year you retire,
you do not make any contributions to your 401(k). So if you retire at age 65,
your last contribution happened when you were actually 64.
 Current 401(k) balance
 The starting balance or current amount you have invested or saved in your
401(k).
 Annual rate of return
 The annual rate of return for your 401(k) account. This calculator assumes
that your return is compounded annually and your deposits are made monthly. The
actual rate of return is largely dependent on the type of investments you
select. The actual rate of return is largely dependent on the type of
investments you select. From January 1970 to December 2004, the average
compounded rate of return for the S&P 500, including reinvestment of
dividends, was approximately 11.5% per year. During this period, the highest
12month return was 64%, and the lowest was 39%. Savings accounts at a bank
pay as little as 1% or less. It is important to remember that future rates of
return can't be predicted with certainty and that investments that pay higher
rates of return are subject to higher risk and volatility. The actual rate of
return on investments can vary widely over time, especially for longterm
investments. This includes the potential loss of principal on your investment.
 Annual salary increase
 The annual rate you expect your salary to increase. We assume that your
salary will continue to increase at this rate until you retire.
 Employer match
 An employer match is in addition to your annual contributions. It is based
on a percentage of your annual contributions. This range can be anywhere from
0% to 100%.
For example, let's assume the employer matches 50% of the
employee's contributions up to 6% of their salary. The employee earns $100,000
per year and contributes 10%. The results would be:
 $10,000 from the employee
 $3,000 from the employer (which is 50% of $6,000 or 6% of the annual
salary).
 Total: $13,000
Please read the definition for "Employer maximum" for a detailed
description of maximum employer matching contributions. It is also important to
note employer contributions do not affect the maximum amount allowed to be
contributed by an employee.
 Employer maximum
 This is the maximum percent of your salary matched by your employer
regardless of the amount you decide to contribute. For example, let's assume
your employer has a 50% match, up to a maximum of 6% of your annual salary. If
you have an annual salary of $25,000 and contribute 6%, your annual
contribution is $1500. With a 50% match, your employer will add another $750 to
your 401(k) account. If you increase your contribution to 10%, your annual
contribution is $2500 per year. Your employer match, however, is limited to the
first 6% of your salary and remains at $750.


