# 401k Contribution Calculator Article byAbhijeet Sharma ## Contribution Calculator for 401k

A 401(k) Contribution calculator will help one to calculate the contribution that will be made by the individual and the employer contribution as well, depending upon the limits.

#### Contribution to 401(k)

( S x C ) + { ( S x C)* x E }

Wherein,
• S is the Annual Salary.
• C is the contribution of the employee.
• E is the Employer’s contribution.
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The formula for calculating 401(k) Contribution as per below:

Contribution to 401(k)   ;

( S x C )* + ( ( S x C)* x E )**

Periodical 401(k) Contribution is made then calculation:

O * (1+i)F*n  +  I *  ((1+i)F*n – 1 / i )

In case the investment is made at the beginning of the period:

O * (1+i)F*n + I * (((1+i)Fxn – 1) * (1+i) / i )

Wherein,

• S is the Annual Salary
• C is the contribution of the employee
• E is the Employer’s contribution
• O is the starting
• I is the periodical fixed amount invested at regular intervals
• i is the rate of interest
• F is the frequency of interest is paid
• n is the number of periods for which a 401(k) Contribution shall be made.

* The maximum amount would be \$19,000 per year for 2019** Employer contribution will be subject to any ceiling limits decided by the employer.

401(k) contribution calculator is a subset to 401(k) wherein first, we shall calculate the employee contribution amount, and that contribution cannot exceed \$19,000, and further, the employer contribution will also be calculated subject to limits decided by the individual’s employer. 401(k) has certain limits as one is already taking deductions on the contributions made and is deferring the payment of taxes and hence is considered one of the best alternate plans for retirement since the employer will also be contributing to retirement benefits of their employee.

### How to Calculate Using a 401(k) Contribution Calculator?

One needs to follow the below steps in order to calculate the maturity amount for the 401(k) Contribution account.

Step #1 – Determine the initial balance of the account, if any, and also, there will be a fixed periodical amount that will be invested in the 401(k) Contribution, which would be maximum to \$19,000 per year.

Step #2 – Figure out the rate of interest that would be earned on the 401(k) Contribution.

Step #3 – Now, determine the duration which is left from current age till the age of retirement.

Step #4 – Divide the rate of interest by the number of periods the interest or the 401(k) Contribution income is paid. For example, if the rate paid is 9% and it compounds annually, then the rate of interest would be 9%/1, which is 9.00%.

Step #5 – Determine whether the contributions are made at the start of the period or at the end of the period.

Step #6 – Figure out whether an employer is also contributing to match with the individual’s contribution, and that figure plus value arrived in step 1 will be the total contribution in the 401(k) Contribution account.

Step #7 – Now use the formula accordingly that was discussed above for calculating the maturity amount of the 401(k) Contribution, which is made at regular intervals.

Step #8 – The resultant figure will be the maturity amount that would include the 401(k) Contribution income plus the amount contributed.

Step #9 – There would be tax liability at the time of retirement for the entire amount since the contributions that are made are pre-tax, and deductions are taken for the amount that is contributed.

You can download this 401(k) Contribution Calculator Excel Template here – 401(k) Contribution Calculator Excel Template

### Example #1

Mr. HNK is working in a multi-national firm, and he has been investing in a 401(k) Contribution account and has accumulated \$2,900, and he earns \$140,000 early, and he wants to contribute 25% of his annual salary. Further, the employer also contributes 30% of his contribution and limits the same up-to 7% of the annual salary. Mr. M wants to invest for the next 25 years. The rate of interest that he will earn will be 5% per annum, which will be compounded annually. The contribution will be made at the start of the year.

Based on the given information, you are required to calculate the amount that would be accumulated at the time of maturity.

Solution:

We are given below details:

• An annual salary of Mr. HNK is: \$140,000
• Contribution of Mr. HNK towards 401(k): 25%
• Employer Contribution: 30% of the contribution
• Maximum employer contribution: 7% of the annual salary
• Maximum employer contribution: \$9,800 (140,000 x 7%) Contribution to 401(k) = ( S x C )* + { ( S x C)* x E }** • = ( \$140,000 * 25% ) + ( ( \$140,000 * 25% ) * 30% ))
• = \$45,500

Now here, the contribution of an individual cannot exceed \$19,000 and hence the maximum amount that can be invested including both will be \$19,000.

• O = \$0
• I = \$19,000
• i = Rate of interest, which is 5.00% and is compounded annually
• F = Frequency which is annually here, hence it will be 1
• n = number of years the 401(k) Contribution proposed to be made will 25 years.

Now, we can use the below formula to calculate the maturity value.

401(k) = O * (1+i)F*n + I * (((1+i)F*n – 1) * (1+i) / i ) • = 0 * ( 1 + 5.00% )1 *25 + \$19,000 * ((1+5.00%)1*25 – 1 * (1+5.00%) / 5.00%)
• =  \$952,155.62

At the time of retirement when he withdraws the amount, he will be liable for tax on the entire amount, since the contributions are made pre-tax and deductions have been taken.

### Example #2

Mr. A is employed with ABC company for 5 years. Since he has completed 5 years in the firm, as per the policy of the firm, the company will invest 50% of his annual contribution and subject to a maximum of 8% of the annual salary. Mr. A is contributing 10% of his annual salary and is willing to do so for the next 30 years. He has been earning \$30,000 a year, which is paid semi-annually.

Based on the given information, you are required to calculate the contribution amount that will be made by Mr. A and his employer.

Solution:

We are given below details:

• Annual salary of Mr. A is \$30,000
• Contribution of Mr. A towards 401(k): 10%
• Employer Contribution: 50% of the contribution
• Maximum employer contribution: 8% of the annual salary
• Maximum employer contribution: \$2,400
Contribution to 401(k) = ( S x C )* + ( ( S x C)* x E )** • = ( \$30,000 * 10% ) + (( \$30,000 * 10% ) * 50% ) )
• = \$4,500

Since the contribution of an employer is below 2,400 maximum limits, we can take \$1,500.

### Conclusion

401(k) Contribution, as discussed, is a type of calculator wherein an individual can calculate the amount he can invest in a 401(k) plan and what amount his employer will contribute. This is one plan wherein an individual can defer tax payment.

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