401(k) Savings with Profit Sharing
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 You only pay taxes on contributions and earnings when the money is withdrawn.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, some 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.
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% of their salary to a 401(k).
Annual Contribution LimitsYour 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 2012 is $17,000. If you are age 50 or over, a “catch-up” provision allows you to contribute an additional $5,500 into your 401(k) account. It is also important to note that employer contributions do not affect an employee’s maximum annual contribution limit.
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 $115,000 or more in 2012 or was $115,000 or more in 2011, you may need to contact your employer to see if these additional contribution limits apply to you.
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. The actual rate of return is largely dependent on the type of investments you select. The S&P 500 for the ten years ending on December 31st, 2011 had an annual compounded rate of return of 2.92%, including reinvestment of dividends. From January 1970 through the end of 2011, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 10.01% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a bank may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.
If you plan on withdrawing your money within five years, you may wish to choose a more conservative rate of return. This calculator assumes that your return is compounded annually and your deposits are made monthly.
Employer Profit Share
This is the percent of your salary matched by your employer in the form of a profit share. For example, if you have an annual salary of $25,000 and the employer profit share is 3%, your employer will add another $750 to your 401(k) account. Employer contributions can be subject to a vesting schedule. See your plan information for details.
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 regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.