How we calculate
formula · sources · cadence
Match capture: min_contribution_pct = match_cap_pct — contributing below the cap leaves free money on the table. Marginal tax savings: annual_savings = contribution × (federal_marginal + state_marginal) using your gross + state to look up the federal bracket and state schedule from the DCEngine tax tables. Roth break-even: Traditional wins if your marginal bracket today is higher than your expected retirement bracket; Roth wins otherwise. The 30-year projection compounds your contribution + employer match at your chosen expected return (default 7% nominal, the conventional historical balanced equity‐heavy assumption) minus a 0.5% expense-ratio drag.
Reader questions
9 questions answered
- How much should I contribute to my 401(k)?
- Floor: contribute enough to capture the full employer match — anything less is leaving free money. Most plans match 50% on the first 6% of salary or 100% on the first 3–4%. Above the match, the next priority is the IRS limit ($23,500 for 2025, $31,000 if 50+). Whether to fill the limit depends on (a) whether you have an emergency fund, (b) whether high-interest debt is paid down, and (c) your marginal federal+state rate — high marginal earners get more bang per dollar contributed.
- Should I do Roth or Traditional 401(k)?
- Traditional wins if your marginal bracket today is higher than the marginal bracket you expect in retirement. Roth wins otherwise. Most W-2 earners in their peak earning years (combined federal+state marginal >30%) are in higher brackets today than they will be in retirement — Traditional is usually the right call. Younger workers in low brackets, or anyone in a state that taxes Traditional withdrawals but exempts Roth (e.g., Pennsylvania), should lean Roth. Many plans allow split contributions; a 50/50 hedge is reasonable when your retirement bracket is genuinely uncertain.
- What's the 2025 401(k) contribution limit?
- $23,500 for employees under 50. $31,000 if you're 50+ (the $7,500 catch-up). A new SECURE 2.0 'super catch-up' raises the cap to $34,750 for ages 60–63 starting 2025. Employer match does not count against the employee limit — it counts against a separate $70,000 combined limit (2025). High earners maxing the limit can also contribute an additional $7,000 to a Roth IRA (subject to income phaseouts) for total tax-advantaged savings of $30,500+.
- Does state tax affect my 401(k) decision?
- Yes — in two ways. (1) Your current marginal state rate stacks on top of your federal marginal rate when you contribute to Traditional (the deduction saves you both). (2) Your retirement state matters for withdrawals: Pennsylvania, Mississippi, and Illinois exempt 401(k) withdrawals from state tax entirely; California and New York tax them at full marginal rates. If you're contributing in a high-tax state (CA, NY, NJ, OR) and plan to retire in a no-tax state (FL, TX, NV, TN), Traditional gets a double benefit — your deduction saves at the high state rate and your withdrawal is taxed at zero.
- What's a realistic expected return for projection?
- The conventional historical 'balanced equity-heavy' assumption is 7% nominal (after inflation, ~4% real). That comes from the long-run S&P 500 total return ~10% nominal minus a typical 60/40 or 70/30 bond drag. Vanguard's 2024 Capital Markets forecast projects 4.2–6.2% nominal for U.S. equities over the next decade (lower than historical because of high starting valuations). Conservative planners use 5–6%; aggressive use 8%. Our default is 7% with a 0.5% expense-ratio drag, but you can change it in the calculator.
- What if my employer doesn't match?
- Then your 401(k) is just a tax-advantaged investment account — still worth using for the marginal tax deferral, but the priority order shifts. Without a match, IRA (Roth or Traditional) often gives you better fund choices and lower fees than your employer's 401(k) plan. Order: IRA first up to $7,000, then employer 401(k) up to $23,500, then taxable brokerage. With a match, 401(k) up to the match cap comes first, then IRA, then back to 401(k).
- How does the employer match cliff work?
- Most employer matches use one of three structures: (1) flat % up to a cap — e.g., 100% on the first 4% of salary, (2) partial match up to a cap — e.g., 50% on the first 6%, and (3) tiered match — e.g., 100% on first 3% + 50% on next 2%. The cap matters more than the percentage: a 100% match on first 3% ($3K of free money on a $100K salary) often beats a 50% match on first 6% ($3K) and is identical on dollar terms. Always check the formula in your plan doc.
- What's the highly-compensated employee (HCE) limit?
- If your prior-year compensation exceeded $155,000 (2024 threshold) you're an HCE. Your contribution may be capped below the standard $23,500 if your plan fails ADP/ACP testing — typical HCE caps land between 6% and 12% of compensation. Plans with safe-harbor matches automatically pass these tests and are not affected. If you're an HCE in a non-safe-harbor plan, watch for refund checks in March that come back as taxable income.
- Can I borrow from my 401(k)?
- Most plans allow loans up to 50% of vested balance or $50,000, whichever is less. Repayment is typically over 5 years (longer for primary-residence purchase) at the prime rate + 1–2%. The trap: if you leave your job before the loan is repaid, the balance becomes taxable + 10% penalty (under 59½). Empirically, ~10% of 401(k) loan-takers default within 5 years. Use as a last resort — the lost compounding alone (5+ years out of the market) plus default risk usually outweighs the cost of a HELOC or low-rate personal loan.