Data Source and Methodology
Authoritative source for contribution limits: Internal Revenue Service (IRS). See: IRS 2024 Retirement Plan Contribution Limits and IRS Notice 2023-75. All calculations use standard time-value-of-money formulas and apply IRS caps as configured.
All calculations are strictly based on the formulas and data provided by this source.
The Formula Explained
Employee contribution (percent mode): C_{emp,y} = \min\left(r \cdot S_y,\ L_{def,y} + L_{catch,y}\right)
Employer match: C_{er,y} = \min\left(C_{emp,y},\ S_y \cdot c\right) \cdot m
Annual additions cap: C_{cap,y} = L_{ann,y}; if (C_{er,y} + \min(C_{emp,y}, L_{def,y}) > C_{cap,y}) then reduce C_{er,y} accordingly.
Balance update (net of fees): B_{y+1} = \left(B_y + C_{emp,y} + C_{er,y}\right) \cdot \left(1 + \frac{R - F}{100}\right)
Real balance (today’s dollars): B^{real}_Y = \dfrac{B_Y}{(1 + \frac{I}{100})^Y}
Estimated annual income: I_{ret} = B_Y \cdot \dfrac{w}{100}; monthly = \dfrac{I_{ret}}{12}
Where S is salary, g is salary growth, r is employee contribution rate, c is match cap as percent of salary, m is employer match rate, L_def is elective deferral limit, L_catch is catch-up (age ≥ 50), L_ann is annual additions limit, R is expected return, F is fees, I is inflation, and w is withdrawal rate.
Glossary of Variables
How It Works: A Step-by-Step Example
Suppose you are 35 and plan to retire at 67. You have $30,000 saved, earn $80,000, contribute 10% of salary, and your employer matches 50% up to 6% of salary. You expect 7% annual returns, pay 0.5% in fees, your salary grows 3% yearly, inflation runs at 2.5%, and you enable IRS 2024 limits indexed by inflation. Using the formulas above:
- Each year, salary S_y increases by 3%.
- You contribute C_emp,y = min(10% × S_y, deferral + catch-up if age ≥ 50).
- Your employer contributes C_er,y = min(C_emp,y, 6% × S_y) × 50%.
- If employee (up to deferral limit) + employer exceeds the annual additions limit, the tool trims employer match.
- Grow the account: B_{y+1} = (B_y + contributions) × (1 + (7 − 0.5)/100) = × 1.065.
- At retirement, convert to today’s dollars by dividing by (1 + 0.025)^(years) and estimate income with the 4% rule.
The calculator performs these steps year-by-year for a realistic projection and reports totals for employee and employer contributions, and the investment gains component.
Frequently Asked Questions (FAQ)
Do you account for catch-up contributions?
Yes. Starting in the calendar year you turn 50, the tool adds the catch-up allowance to your elective deferral cap when IRS limits are enforced.
What if my plan has different match rules?
Enter the closest equivalent: a match rate (e.g., 100%) and the cap as a percent of salary (e.g., 4%). If your plan is more complex, use conservative settings.
Are returns the same for Traditional and Roth 401(k)?
Yes. Growth is tax-deferred or tax-free depending on account type, but market returns are the same. This tool focuses on growth and does not model taxes.
How accurate are inflation-adjusted results?
They show purchasing power in today’s dollars using your chosen inflation rate. Actual inflation will differ.
Can I enter negative returns?
You can model temporary negative averages, but long-term planning typically uses positive real returns. The tool bounds inputs to reasonable ranges.
Why is my employer match reduced in some years?
If total additions would exceed the IRS annual additions limit, the tool trims employer contributions to comply.
Is this financial advice?
No. Use this as an educational estimate and consult a fiduciary advisor for personalized guidance.