401K Calculator

401(k) Information

A 401(k) is a form of retirement savings plan in the U.S. with tax benefits that are mainly available through an employer. It is named after subsection 401(k) in the Internal Revenue Code, which was made possible by the Revenue Act of 1978. Self-directed 401(k)s exist for people who can't participate in employer-sponsored 401(k)s. Contributions to a 401(k) are made as pre-tax deductions during payroll, and the dividends, interest, and capital gains of the 401(k) all benefit from tax deferment. This means that assets in a 401(k) grow tax-free and won't be taxed until a later point, usually during retirement. The 2025 deferral limit for 401(k) plans was $23,500, the 2026 limit is $24,500.

General Pros and Cons of a 401(k)

A 401(k) is a Defined Contribution Plan

Unlike a defined benefit plan (DBP/pension), defined contribution plans (DCPs) like 401(k)s allow participants to choose from a variety of investment options. Today, the 401(k) defined contribution pension plan is the most popular private-market retirement plan. When an employee with a 401(k) plan changes employers, they generally have the option to:

• Leave their assets in their previous employer's 401(k) plan
• Rollover their previous 401(k) to their new employer's 401(k) plan
• Rollover their old 401(k) to an Individual Retirement Account (IRA)
• Cash-out their 401(k), but pay taxes and a 10% penalty

In general, 401(k) rollovers can only be requested once every twelve months.

Employer Match

A 401(k) match is an employer's percentage match of a participating employee's contribution to their 401(k) plan, usually up to a certain limit denoted as a percentage of the employee's salary. As an example, an employer that matches 50% of an employee's contribution for up to 6% of their salary would contribute a maximum of 3% of the employee's salary. Annual contributions to an employee's account cannot exceed the lesser of 100% of the participant's compensation, or $72,000 in 2026.

401(k) Vesting Periods

Some employers require a vesting period to incentivize employees to stay long-term. A 4-year vesting period is fairly common — after the first year an employee is entitled to 25% of employer contributions, increasing to 100% after 4 years (graded vesting). Cliff vesting means all vestings take place at once at a certain point. Different 401(k) plans have different rules regarding vesting.

Early Withdrawal

Contributions and earnings cannot be withdrawn without penalty before age 59½. Under certain circumstances, exceptions are made and early withdrawals are permitted without the 10% penalty (though ordinary income taxes still apply):

401(k) Hardship Withdrawal

• Unexpected, unreimbursed medical expenses exceeding 7.5% of adjusted gross income
• Costs related to the purchase of a principal residence
• Post-secondary tuition and education expenses for the next 12 months
• Expenses to prevent foreclosure or eviction from the participant's home
• Burial or funeral expenses
• Expenses for the repair of damage to a principal residence

Non-Financial Hardship Withdrawal

• Passing away (account paid to beneficiary)
• Having a qualifying disability
• Terminating employment when at least 55 years old
• Withdrawing an amount less than what is allowable as a medical expense deduction
• Amounts related to qualified domestic relations orders
• Beginning substantial equal periodic payments (IRS rule 72(t))

401(k) Distributions in Retirement

Anyone older than 59½ can begin receiving distributions. Distributions can be deferred until age 73. Between 59½ and 73, participants have several options:

• Option 1 – Receive Distributions: As a lump sum or installments. A common rule is the 4% rule — withdrawing 4% annually.
• Option 2 – Rollover: Roll over to an IRA or another employer's plan. No taxes imposed on rollovers.
• Option 3 – Annuity: Convert to an annuity through an insurance company for monthly lifetime benefits.
• Option 4 – Do Nothing: Defer distributions for as long as possible (up to age 73).

Required Minimum Distributions (RMD)

Anyone reaching age 73 (72 if you reach 72 before Dec. 31, 2022) is required to take RMDs from their 401(k). The exact amount is based on the prior year's December 31st account balance and an IRS life expectancy chart. The federal penalty for not taking the RMD is a 50% tax on any amount not withdrawn in time.

Self-Directed 401(k)

A self-directed (SD) 401(k), sometimes called a solo 401(k), is designed for self-employed individuals. For the most part, SD 401(k)s can be used to invest in almost anything: real estate, tax liens, precious metals, foreign currency, or money lending. SD 401(k)s also allow plan participants to borrow up to 50% of their account value (or $50,000, whichever is less) as personal loans.

Roth 401(k)

The Roth 401(k) combines features of the traditional 401(k) with features of the Roth IRA. The main difference is the timing of taxation — contributions are after-tax (taxes paid upfront), and qualified withdrawals in retirement are tax-free. The same 2026 contribution limits apply: $24,500 (under 50), $32,500 (50+), $35,750 (60–63). Unlike the Roth IRA, contributions can't be withdrawn without penalty until five years after the plan starts, and there are required minimum distributions at age 73 (though a Roth 401(k) can be rolled into a Roth IRA to avoid RMDs).