401(k) Compound Interest Calculator
See how your 401(k) retirement savings grow through the power of compound interest. Model employer matching, tax-deferred growth, and regular contributions to project your retirement balance.
- Tax-deferred compounding — your 401(k) grows without annual tax drag, amplifying compound growth
- Employer match = free money — a 50% match on 6% of salary is an instant 50% return before compounding
- 2026 contribution limit: $23,500 — plus $7,500 catch-up if you're 50+
- Starting at 25 vs. 35 can double your retirement balance with the same monthly contribution
| Year | Principal | Interest | Balance |
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| Year | Initial | Contributions | Interest | Balance |
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CAGR = (Ending Value / Starting Value)^(1/Years) - 1A = P × e^(r × t)Where e ≈ 2.71828 (Euler's number)
How Compound Interest Works in a 401(k)
A 401(k) retirement account benefits from compound growth in a unique way. Unlike a taxable investment account where you pay taxes on dividends and capital gains each year, a 401(k) allows your entire balance to compound without annual tax drag. This means every dollar of growth immediately becomes part of your compounding base. The IRS 401(k) contribution limits page outlines how much you can contribute each year, while the Department of Labor's retirement plan overview explains how 401(k) plans fit into the broader landscape of employer-sponsored retirement options.
When you contribute to a traditional 401(k), your contribution is made with pre-tax dollars, reducing your current taxable income. A $500 monthly contribution for someone in the 22% tax bracket only reduces take-home pay by $390, because the $110 tax savings is effectively contributed by the government. This pre-tax advantage means more money enters the compounding engine from the start.
The Power of Employer Matching
An employer match is the single best return on investment available to most workers. If your employer matches 50% of contributions up to 6% of salary, and you earn $75,000, that means:
- Your 6% contribution: $4,500/year ($375/month)
- Employer 50% match: $2,250/year ($187.50/month)
- Total entering your 401(k): $6,750/year ($562.50/month)
The employer match is an instant 50% return on your contributed dollars before compound interest even begins. Not contributing enough to capture the full match is leaving free money on the table. At 7% growth over 30 years, that $2,250 annual match alone compounds to over $227,000. For a deeper explanation of how matching formulas work across different employers, see Investopedia's guide on 401(k) matching.
401(k) Growth Projections
| Monthly Contribution | After 10 Years | After 20 Years | After 30 Years | After 40 Years |
|---|---|---|---|---|
| $200 | $34,604 | $104,185 | $243,994 | $524,900 |
| $500 | $86,509 | $260,464 | $609,985 | $1,312,250 |
| $1,000 | $173,018 | $520,927 | $1,219,971 | $2,624,499 |
| $1,500 | $259,527 | $781,391 | $1,829,956 | $3,936,749 |
Assumes 7% average annual return, monthly compounding, $0 starting balance. These projections demonstrate why starting early and contributing consistently is the most reliable path to a comfortable retirement.
Historical 401(k) Performance
The performance of your 401(k) depends on your asset allocation. According to data from Fidelity Investments, the average 401(k) balance has grown significantly for long-term participants. The Federal Reserve Economic Data (FRED) shows that the S&P 500 — a common benchmark for 401(k) stock funds — has delivered approximately 10% average annual returns over the past century.
| Asset Allocation | 10-Year Avg Return | 20-Year Avg Return | Best Year | Worst Year |
|---|---|---|---|---|
| Aggressive (90% stocks / 10% bonds) | 10.5% | 9.2% | +33.1% | -37.0% |
| Growth (70% stocks / 30% bonds) | 8.8% | 7.9% | +25.4% | -28.3% |
| Balanced (60% stocks / 40% bonds) | 7.9% | 7.2% | +21.7% | -22.5% |
| Conservative (40% stocks / 60% bonds) | 6.2% | 5.8% | +16.2% | -14.8% |
| Target-Date (age-based) | 7.5% - 9.5% | 6.8% - 8.5% | Varies | Varies |
Returns are approximate based on historical data for typical 401(k) asset mixes. Past performance does not guarantee future results. Target-date funds automatically adjust allocation as you approach retirement, as explained by the SEC's investor alert on target-date funds.
Traditional vs. Roth 401(k)
Traditional 401(k): Contributions are pre-tax. Your money grows tax-deferred. You pay income tax on withdrawals in retirement. Best if you expect to be in a lower tax bracket in retirement.
Roth 401(k): Contributions are after-tax. Your money grows completely tax-free. Withdrawals in retirement are tax-free. Best if you expect to be in a higher tax bracket in retirement or want tax certainty.
Both options benefit from compound growth. The key difference is when you pay taxes. Many financial advisors recommend splitting contributions between both if your employer offers a Roth option, providing tax diversification in retirement.
2026 401(k) Contribution Limits
The IRS sets annual contribution limits for 401(k) plans. Here are the current limits for 2026:
| Limit Type | 2025 | 2026 | Change |
|---|---|---|---|
| Employee contribution (under 50) | $23,000 | $23,500 | +$500 |
| Catch-up contribution (50+) | $7,500 | $7,500 | No change |
| Total employee + catch-up (50+) | $30,500 | $31,000 | +$500 |
| Total all sources (under 50) | $69,000 | $70,000 | +$1,000 |
| Total all sources (50+) | $76,500 | $77,500 | +$1,000 |
"All sources" includes employee contributions, employer matching, profit-sharing, and after-tax contributions. Most employers also set their own limits on matching percentages. Consult the Department of Labor's retirement FAQ for more details about your rights as a plan participant.
Frequently Asked Questions
At minimum, contribute enough to get your full employer match. Beyond that, aim for 15-20% of your gross income (including the match). If you can't reach 15% immediately, start with what you can and increase by 1-2% each year. The 2026 contribution limit is $23,500, or $31,000 if you're 50 or older.
The average 401(k) return depends on your investment allocation. A stock-heavy portfolio has historically returned 8-10% per year. After fund expense ratios (0.1-1.0%), net returns of 7-9% are realistic. A balanced portfolio with 60% stocks and 40% bonds typically returns 6-8%.
A 401(k) doesn't compound in the traditional sense like a savings account. Instead, the value of your investments changes daily based on market performance. When dividends are reinvested (which most plans do automatically), they buy additional shares that then grow alongside your other holdings, creating a compounding effect.
You have four options: leave it in your former employer's plan, roll it into your new employer's 401(k), roll it into an IRA, or cash it out. Rolling into an IRA often provides the most investment options. Cashing out triggers income tax plus a 10% penalty if you're under 59½, potentially losing 30-40% of the balance.
You can take penalty-free withdrawals starting at age 59½. The Rule of 55 allows penalty-free withdrawals from your current employer's plan if you leave that employer at age 55 or later. Required Minimum Distributions (RMDs) must begin at age 73. Early withdrawals before 59½ incur a 10% penalty plus income tax.
Choose Roth if you expect higher taxes in retirement (early career, lower current income, or you believe tax rates will rise). Choose traditional if you expect lower taxes in retirement (high earner now). Many advisors recommend splitting between both for tax diversification.
Yes, you can have multiple 401(k)s if you have multiple jobs. However, the annual contribution limit applies across all 401(k) accounts combined. If you contributed $15,000 at one job, you can only contribute up to $8,500 more at another job (2026 limit: $23,500). Having old 401(k)s at former employers is common. Consider consolidating them into an IRA for easier management, more investment options, and potentially lower fees. The IRS provides rollover guidance for this process.
RMDs are mandatory withdrawals from traditional 401(k) accounts starting at age 73 (as of the SECURE 2.0 Act). The amount is based on your account balance and life expectancy factor from IRS tables. Failure to take RMDs results in a 25% penalty tax on the amount that should have been withdrawn. Roth 401(k) accounts are now exempt from RMDs starting in 2024, thanks to SECURE 2.0. Learn more from the IRS RMD rules page.
When you change jobs, you have several rollover options: keep the money in your old employer's plan, roll it into your new employer's 401(k), roll it into a Traditional or Roth IRA, or cash it out (not recommended due to taxes and penalties). A direct rollover into an IRA is often the best choice because it gives you access to a wider range of low-cost investments and avoids any tax withholding. Make sure to request a direct (trustee-to-trustee) transfer to avoid the mandatory 20% withholding that applies to indirect rollovers.
The decision depends on whether you expect your tax bracket to be higher or lower in retirement. If you are early in your career with a lower income, a Roth 401(k) is often ideal because you pay taxes now at a low rate and withdraw tax-free later. If you are a high earner now, a Traditional 401(k) may save more through the current tax deduction. Many advisors suggest using both for tax diversification — our retirement compound interest guide explores how each option compounds over time.
At an absolute minimum, contribute enough to capture your full employer match — anything less means you are leaving free money on the table. Financial planners generally recommend saving 15% of your gross income for retirement (including employer contributions). If you cannot reach 15% right away, start with whatever you can and increase by 1% each year — the power of monthly contributions compounding over decades is substantial, even with small incremental increases.
A 401(k) loan allows you to borrow up to 50% of your vested balance (maximum $50,000) and repay it with interest to yourself, typically within five years. While it may seem harmless because you pay interest back to your own account, the borrowed funds miss out on market growth during the repayment period. Even worse, if you leave your job, the full balance may be due within 60 days or it will be treated as a taxable distribution with a 10% early withdrawal penalty. Explore better investment strategies before tapping your retirement savings.
Yes, you can contribute to both a 401(k) and an IRA in the same year. However, if you participate in a 401(k), your ability to deduct Traditional IRA contributions may be limited based on your income. There are no income limits for contributing to a Roth IRA through a backdoor conversion strategy. Maxing out both accounts — $23,500 in your 401(k) and $7,000 in your IRA for 2024 — is one of the most effective ways to maximize compound interest for retirement.
Understanding 401(k) Contribution Limits
Understanding how much you can contribute to your 401(k) each year is essential for maximizing your retirement compound interest growth. For 2024, the IRS allows employees under age 50 to contribute up to $23,000 per year. If you are 50 or older, you can make an additional $7,500 catch-up contribution, bringing the total to $30,500. These limits apply to your employee deferrals only — employer contributions do not count against this cap.
Most employers offer a matching contribution, typically 50% of your contributions up to 6% of your salary. This match is one of the most powerful wealth-building tools available. Consider a worked example: if your annual salary is $75,000 and you contribute 6% ($4,500 per year), your employer would match 50% of that, adding $2,250 per year. That means $6,750 per year flows into your 401(k), of which $2,250 is essentially free money.
You should always contribute at least enough to capture the full employer match. Failing to do so is the equivalent of turning down a guaranteed 50% return on your contributed dollars. Once you have the match secured, work toward increasing your contribution rate each year — even small increases make a dramatic difference thanks to the power of monthly contributions compounding over decades.
| Year | Employee Limit (Under 50) | Catch-Up (50+) | Total (50+) |
|---|---|---|---|
| 2019 | $19,000 | $6,000 | $25,000 |
| 2020 | $19,500 | $6,500 | $26,000 |
| 2021 | $19,500 | $6,500 | $26,000 |
| 2022 | $20,500 | $6,500 | $27,000 |
| 2023 | $22,500 | $7,500 | $30,000 |
| 2024 | $23,000 | $7,500 | $30,500 |
As this table shows, contribution limits have increased steadily over time, allowing savers to shelter more income from current taxes. For the latest figures, always check the IRS 401(k) Contribution Limits page.
401(k) vs Other Retirement Accounts
A 401(k) is just one of several tax-advantaged retirement accounts available. Understanding how it compares to alternatives like a Roth IRA, Traditional IRA, or SEP IRA can help you build the most tax-efficient retirement strategy. Many savers benefit from using multiple account types to create tax diversification — the ability to draw from both taxable and tax-free sources in retirement.
| Account Type | Tax Treatment | 2024 Contribution Limit | Employer Match | Income Limits |
|---|---|---|---|---|
| Traditional 401(k) | Pre-tax contributions; taxed on withdrawal | $23,000 ($30,500 if 50+) | Yes | None |
| Roth 401(k) | After-tax contributions; tax-free withdrawals | $23,000 ($30,500 if 50+) | Yes (match goes to traditional) | None |
| Traditional IRA | Pre-tax (if deductible); taxed on withdrawal | $7,000 ($8,000 if 50+) | No | Deduction phases out with 401(k) |
| Roth IRA | After-tax contributions; tax-free withdrawals | $7,000 ($8,000 if 50+) | No | $161,000 single / $240,000 married |
| SEP IRA | Pre-tax contributions; taxed on withdrawal | 25% of compensation (up to $69,000) | Employer-funded only | None |
The 401(k) stands out for its high contribution limits and employer matching. However, IRAs offer more investment flexibility and, in the case of Roth IRAs, income-tax-free growth and withdrawals. Many financial planners recommend maxing out your 401(k) match first, then funding a Roth IRA, and then returning to increase 401(k) contributions. Learn more about your options from the DOL Retirement Plans FAQ.
The Impact of Fees on Your 401(k)
Investment fees are one of the most overlooked factors in 401(k) growth, yet they can cost you hundreds of thousands of dollars over a career. Even a seemingly small difference in expense ratios compounds dramatically over time because fees reduce both your current balance and all future growth on that balance. Understanding fee impact is a critical part of any strategy to maximize compound interest in your retirement accounts.
The table below illustrates how different expense ratios affect a $500 monthly contribution growing at a 7% gross annual return over 10, 20, and 30 years:
| Expense Ratio | Net Return | Balance at 10 Years | Balance at 20 Years | Balance at 30 Years | Fees Paid Over 30 Years |
|---|---|---|---|---|---|
| 0.50% | 6.50% | $83,573 | $243,399 | $550,017 | $59,968 |
| 1.00% | 6.00% | $81,940 | $231,020 | $502,257 | $107,728 |
| 1.50% | 5.50% | $80,336 | $219,369 | $459,271 | $150,714 |
The difference between a 0.50% and 1.50% expense ratio is $90,746 over 30 years — nearly half a year's worth of contributions lost purely to fees. This is why choosing low-cost index funds within your 401(k) is so important. If your employer's plan only offers high-fee options, consider advocating for better choices or supplementing with a low-cost Roth IRA. Use the SEC Mutual Fund Fee Analyzer to evaluate the fee structure of funds in your plan.
401(k) Withdrawal Rules and Strategies
Knowing the rules around 401(k) withdrawals is just as important as understanding contributions. The IRS imposes a 10% early withdrawal penalty on distributions taken before age 59½, in addition to regular income tax. For someone in the 22% tax bracket, an early $10,000 withdrawal could shrink to just $6,800 after the penalty and taxes — a devastating setback to your long-term investment strategies.
Required Minimum Distributions (RMDs) must begin at age 73, as mandated by the SECURE 2.0 Act. The IRS calculates your RMD each year based on your account balance and a life expectancy factor from their Uniform Lifetime Table. Missing an RMD triggers a steep 25% excise tax on the amount not withdrawn. Planning your withdrawals strategically can minimize lifetime taxes.
Roth 401(k) withdrawal advantages: Unlike traditional 401(k) accounts, Roth 401(k) withdrawals in retirement are completely tax-free (as long as the account has been open for at least 5 years and you are over 59½). Starting in 2024, Roth 401(k) accounts are also exempt from RMDs during the owner's lifetime, making them an excellent tool for tax-free wealth transfer. Consider the benefits of starting early with Roth contributions to maximize the years of tax-free compounding.
Rollover options: When you leave an employer or retire, you can roll your 401(k) into a Traditional IRA (for traditional funds) or a Roth IRA (for Roth funds, or via a taxable conversion). A direct rollover avoids withholding and penalties. Rolling into an IRA typically gives you access to lower-cost investments and more flexibility in your withdrawal strategy. For a complete overview of distribution rules, see the IRS Early Distribution Tax Rules.