What drives a 401(k) balance
A retirement balance is built from four inputs and nothing else: what you already have, what you add, what your employer adds, and the return you earn on all of it. Everything else — fund selection, rebalancing schedules, target-date glide paths — moves those four numbers by degrees. This calculator makes each of them explicit so you can see which one is doing the work in your own projection.
The proportions shift dramatically with time. Over a five-year horizon, contributions dominate: your balance is essentially the money you put in, because compounding has had no time to act. Over thirty years the relationship inverts, and investment growth typically becomes the largest of the three components — the output tiles show you exactly where your projection sits on that spectrum, and the calculator marks investment growth as favourable when it exceeds everything you and your employer paid in.
The employer match is the piece most worth attention, because it is the only input under your control that has a guaranteed, immediate return. A plan that adds fifty cents for every dollar you defer, up to 6% of pay, hands you a 50% return on those dollars the day they land, before any market return at all. No investment decision available inside the plan competes with that. If your deferral rate sits below the match ceiling, the calculator tells you how much employer money you are leaving on the table in the first year.
The fourth driver, salary growth, is quietly powerful because deferrals are a percentage of pay. A 3% annual raise means your contribution grows 3% a year without you ever touching the deferral slider, and thirty years of that roughly doubles the dollars going in.
The recursion behind the projection
There is no closed-form expression for a 401(k) with raises, a match ceiling and a statutory contribution cap, because the cap makes the contribution a piecewise function of salary. So the calculator does what a plan administrator does: it steps forward month by month.
Each month the balance earns one twelfth of the annual return, B × (1 + r/12), and then one twelfth of that year's total contribution is added. That monthly convention matters more than it looks. A model that adds the whole year's contribution at year end understates the balance, because eleven twelfths of the money would really have been invested for part of the year; one that adds it at the start overstates it. Spreading it evenly matches how payroll deferrals actually arrive.
Each year, three things are recomputed. Salary steps up by the raise rate: S_y = S₀(1 + g)^y. Your deferral is min(S_y × d, L_y), where L_y is the §402(g) elective deferral limit indexed forward from today's figure. The employer match is S_y × min(d, c) × m, where c is the share of pay the match runs to and m is the match rate — the min is what makes the match stop growing once you pass the ceiling.
One subtlety worth naming: the match is computed on the deferral you actually made, not on the deferral you asked for. If the §402(g) limit cuts your contribution to less than c of pay, the matched share falls with it. Real plans differ here — some true up at year end so you receive the full annual match anyway, some do not — so check your summary plan description if you are a high earner who hits the cap before December. Note also that m can exceed 100%: a plan paying 150 cents on the dollar for the first 3% of pay contributes more than you do on those dollars, and the calculator models that correctly rather than capping the employer at your own figure.
Worked example: $85,000 salary, 8% deferral, 50% match to 6%, 25 years
Start with a $60,000 balance, an $85,000 salary, an 8% deferral, a 50% employer match on the first 6% of pay, 3% annual raises and a 7% expected return. Follow the first year by hand:
- Your deferral. 85,000 × 8% = $6,800. The §402(g) limit of $23,500 is nowhere near binding, so the full amount goes in — $566.67 a month.
- The employer match. Your 8% exceeds the 6% ceiling, so the match is computed on 6%: 85,000 × 6% × 50% = $2,550, or $212.50 a month. The extra 2% you defer above the ceiling earns no match.
- Total monthly contribution. 566.67 + 212.50 = $779.17.
- Monthly return rate. 7% ÷ 12 = 0.00583333.
- Month one. 60,000 × 1.00583333 = 60,350.00, plus 779.17 = $61,129.17.
- Month two. 61,129.17 × 1.00583333 = 61,485.76, plus 779.17 = $62,264.93. Repeat ten more times to close year one.
- Year two. Salary rises to 85,000 × 1.03 = $87,550. Your deferral becomes $7,004 and the match $2,626.50, and the recursion continues from the year-one closing balance.
Over twenty-five years the pattern is what matters. Your own contributions total roughly $248,000 and the employer adds roughly $93,000, but the projected balance is several times their sum — the gap is compounding, and it is the whole argument for starting early. Note the second-order effect too: raising the deferral from 8% to 10% adds about $1,700 a year of your own money but not one dollar of match, because you are already past the 6% ceiling.
How to judge the number you get
A projected balance means nothing on its own. Convert it into income. The most-cited planning heuristic is the 4% rule: an initial withdrawal of 4% of the balance, inflation-adjusted thereafter, has historically survived a thirty-year retirement in a balanced portfolio. On that basis a $1,000,000 projection funds about $40,000 a year of pre-tax income before Social Security. Compare that against your final-year salary — the calculator reports it — and you have a replacement ratio.
Then deflate it. A projection twenty-five years out is in future dollars. At 2.5% inflation, $1 today costs $1.85 in twenty-five years, so a $1,000,000 nominal balance has roughly $540,000 of today's purchasing power. If you want the answer in today's money, enter a real return — your nominal expectation minus expected inflation, so around 4.5% instead of 7% — and read the whole projection as inflation-adjusted. Do not mix conventions: a real return with a nominal raise assumption double-counts.
The rules of thumb worth checking yourself against are deliberately blunt. A total savings rate of 15% of pay, counting the employer match, is the figure most planners use for someone starting in their twenties; starting at forty requires substantially more. Some benefits teams quote target multiples of salary by age — one times salary by thirty, three times by forty, and so on — which are useful only as a rough progress check, not as a plan.
The strongest signal in the output is the ratio of investment growth to contributions. When growth exceeds everything paid in, compounding rather than saving is carrying the balance, and the projection has become highly sensitive to the return assumption. Rerun it at 5% and at 9% to see the band you are really working with.
What each deferral rate builds over 30 years
| Your deferral | Your annual contribution | From your contributions | From the employer match | Total balance |
|---|---|---|---|---|
| 3% | $2,400 | $243,994 | $121,997 | $365,991 |
| 5% | $4,000 | $406,657 | $203,328 | $609,985 |
| 6% | $4,800 | $487,988 | $243,994 | $731,982 |
| 8% | $6,400 | $650,651 | $243,994 | $894,645 |
| 10% | $8,000 | $813,314 | $243,994 | $1,057,308 |
| 15% | $12,000 | $1,219,971 | $243,994 | $1,463,965 |
The employer column stops growing at 6% because that is where the match ceiling sits. At 15% of an $80,000 salary the deferral is $12,000, still below the §402(g) limit, so no cap applies in any row.
Two separate statutory limits apply
IRC §402(g) caps your own elective deferrals — $23,500 for tax year 2025, indexed annually by the IRS in $500 increments, with an additional catch-up contribution permitted from age 50 under §414(v). That cap follows you, not the plan: if you change jobs mid-year, deferrals to both employers count against the same limit. IRC §415(c) caps total annual additions to your account from every source — your deferrals, the employer match, profit sharing and forfeitures — at $70,000 for tax year 2025 or 100% of your compensation if that is lower. The calculator warns you when a projected year breaches the §415(c) figure. It does not model age-50 catch-up contributions, so if you are over fifty your real capacity is higher than the projection assumes.
Assumptions and limits of this projection
- Returns are constant. Real markets deliver a sequence, not an average, and the order of returns matters enormously once you start withdrawing. A constant-return model is the right tool for the accumulation phase and the wrong one for the drawdown phase.
- Vesting is ignored. The employer match figure is everything contributed, not everything you get to keep. Graded schedules commonly vest over three to six years, so leaving early can forfeit part of it. Your own deferrals are always 100% vested.
- Fees are not deducted separately. Enter a return net of fund expense ratios and any plan administration fee. A 0.75% all-in cost against a 7.75% gross return is a 7% net return — and over thirty years that 0.75% removes a meaningful share of the final balance.
- No loans, withdrawals or job gaps. The model assumes uninterrupted contributions. If you are considering taking money out, price it with the 401(k) early withdrawal penalty calculator first.
- Tax treatment is not modelled. The projection is a pre-tax balance if you defer pre-tax and a tax-free balance if you defer Roth. Which of those is worth more depends on your tax rates now versus in retirement — that is the question the traditional versus Roth comparison answers.
- The deferral cap is projected forward mechanically. The IRS indexes it to inflation in $500 steps, so the smooth indexation used here is an approximation of a step function.
Where the 401(k) fits, and when to use a different tool
The ordering most planners recommend follows the return on each dollar rather than the account type. Defer enough to capture the full employer match first, because nothing else pays 50% or 100% immediately. Clear high-interest debt next, since paying off a 22% balance is a guaranteed 22% return. Then fund an IRA, where the investment menu is unrestricted and the costs are usually lower than a plan's; the Roth IRA growth calculator projects that side. Then return to the 401(k) and push toward the §402(g) cap.
A 401(k) earns its place through three features an ordinary brokerage account cannot offer: the match, the deferral of tax on contributions and all internal growth, and creditor protection under ERISA. It gives up flexibility in return — limited fund menus, plan-level fees, restricted access before 59½ and required minimum distributions later in life.
If you want to compare the plan against a different use of the same money, the general time-value tools apply. The net present value calculator discounts any competing cash-flow stream to today's dollars, and the internal rate of return calculator gives you the annualised return an alternative would have to beat. For a decision about how quickly a competing investment repays itself, the discounted payback period calculator puts it on the same discounted basis.
Rerun this projection whenever your salary, deferral rate or plan design changes, and at least once a year regardless. A projection that has not been updated since your last job is measuring a career you no longer have.