This calculator was designed to illustrate the value of a 401k savings plan with profit sharing. Due to the current economic landsape, workers will mainly have to rely on their assets after to provide income in retirement.

Even though social security benefits will always be available, the value of social security may decrease in the future. There are many retirees’ to provide benefits for and many workers leaving the workforce. Thus, these entitlement programs may have to be modified to provide some benefit to everyone in their later years.

Advances in modern medicine are also increasing life expectancy. This means many people may need to plan for a longer retirement than initially expected. The more time you will be in retirement, the more income you will require. Our increased longevity makes these workforce savings programs even more valuable to invest in.

A 401(K) plan is a tax-advantaged savings account that is offered by many corporate employers. A traditional 401k allows you to set aside a portion of your pre-tax earnings for retirement each year, reducing your taxable income. The money you contribute grows tax-free, along with selected investments, until you leave the workforce.

As a 401k holder, you can choose between a variety of investments to get the growth and security you want. Either a brokerage firm, insurance, or mutual fund company will narrow down a pool of investments for your group 401k plan. This way your savings can grow along with your rate of return. With the help of compound interest you can watch your balance multiply each year.

With bigger deposits, you can put more towards your investment and save money on your next tax filing

However, there are some caps on how much you can deposit into the account each year to prevent plan holders from having unlimited tax deferrals.

In some situations, you might have the option of profit sharing. Through profit sharing, your employer can deposit extra money into your savings account. Their match is typically a percentage of your contribution, up to a portion of your annual income.

If your employer offers a profit sharing program, not participating means you could be missing out on free income for your retirement.

An example of a employer match in a 401k program could be 50% of all employee contributions, with total deposits not exceeding 6% of an employee's income. So if you earn $100,000 a year and make maximum contributions, your employer would contribute $6,000 toward your 401k.

There are some caps on how much you can deposit into the account each year to prevent plan holders from having unlimited tax deferrals.

The IRS is responsible setting out the contribution limits on 401(K) plans and they adjust these limits regularly for inflation. The IRS also sets out any guidelines for provisions, taxes, and penalties.

Currently, elective contribution limits are set to $18,500 per year.

If you are over 50, there is a provision that allows you to contribute an extra $6,000 per year. This additional allowance is called a catch-up contribution and raises the annual elective contribution to $24,500.

Annual employer matching contributions, which are considered non-elective, cannot exceed 100% of the participant’s compensation. When combined with elective contributions, profit sharing is allowed up to $54,000 – $60,000. The higher end of the limit is if catch up contributions apply.

When it comes to taxes, traditional contributions are tax-deferred but the withdrawals are considered ordinary income. Thus, your earnings will be subject to the applicable income tax rate.

There is a 10% penalty if you take your funds before the age of 59 ½, or if the account is less then five years old. Unless you enforce rule 72t to take early payments.

Pension plans are getting harder to come by, so most workers can’t fall back on their employers to provide a steady income during retirement. Instead, employers have implemented the 401k program as an alternative security.

That said, the contribution amount thats best for you will be highly personal and dependant on your future needs. It’s likely that you will have to increase and decrease your deposits to compliment the different stages of your life.

As a general rule, try to max out your contributions as often as possible. If you have profit sharing, you should deposit enough to get your full employer match.

For instance, let's assume your employer offers 50% profit sharing up to 6% of your income. To get the most out of your 401k you should contribute enough enough to get a full match. If you make $100,000, that means you can get a total of $6,000 added to your savings when your elective contribution is $12,000.

The 401(K) savings calculator has two parts: an questionnaire and integrated reports. You will need to provide some basic details about your 401k plan to get an idea of your saving potential. Let’s go over this together.

Step 1. When you know how much you can deposit into your 401k, you should add the percent to contribute on the first line. This is the percentage of your annual income that will be allocated to your savings. Once you decide how much to contribute, your employer will arrange fund transfers before providing your paycheck.

Step 2. On the second line of the calculator, include your annual salary/income. Any anticipated salary increases can be added to line three.

Step 3. You can add your current age to the fourth line of the calculator. Using the arrow keys can make this input even easier for you.

Step 4. On the fifth line of the calculator, document your planned age of retirement

Step 5: You should add your current 401(K) balance to the sixth line.

Step 6: Include the annual rate of return you expect from your investment on the seventh line. When selecting your 401k investments, always be mindful of the fees associated with each fund or security.

Step 7: You can add your employer profit sharing on line eight. Indicate this figure as a percentage of your annual salary. This figure will vary between employers.

Once this information is added to the calculator, you can view the potential of your 401(K) plan. If needed, you can tailor your deposits to meet your saving goals. Try out different contributions and maturities to see how much more you can save.

It is also worth figuring out your Social Security benefits to get a better idea of the income you will have in retirement. You may also want to continue your retirement planning by calculating how long your retirement savings will last, and how much of your earnings will go toward taxes.