A 401(k) plan is a retirement savings plan offered by companies to their employees. It enables employees to save and invest a portion of their pre-tax earnings. Our 401k contribution calculator is a user-friendly tool that can help you figure out how much you will save based on your specific plan.
How much should I contribute to my 401(k) plan?
Many finance experts recommend contributing 15% of your annual income to your 401(k) plan. If that sounds like a lot to you, a good starting point is 4-6%. Ultimately, it will depend on how much you want to save and what you can afford. You will have to make that decision for yourself.
Keep in mind that there are contribution limits in place for retirement savings. For 2023, the annual limit is set at $22,500.
How does 401(k) matching work?
An employer may provide a 401(k) matching benefit, in which they match a portion of an employee’s 401(k) contributions.
Let’s say you earn $50,000 per year and your company agrees to match 50% of your contribution up to 3% of your pay. If you contribute 3% of your monthly pay, which is $125, your company will match 50% of that amount, which is an additional $62.50 each month. This equates to a total monthly contribution of $187.50, or $2,250 a year, to your retirement account, with $1,500 coming from your own contributions and $750 coming from your employer’s match.