401(k) Calculator – Wealth Yogi

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Example: enter 50 for a 50% match on employee contributions.

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Let’s begin with a simple truth — retirement isn’t about stopping work; it’s about buying freedom with time.

And the 401(k) is one of the most elegant tools to do that. It’s not a gamble, not a shortcut — it’s the long game. A quiet companion that grows with every paycheck, designed to give your future self some peace.

What Is a 401(k)?

A 401(k) is a retirement savings plan sponsored by your employer. The name comes from a not-so-poetic section of the U.S. Internal Revenue Code — 401(k).
When you enroll, a part of your salary automatically goes into this account before taxes are applied, meaning you save first, spend later, and pay taxes only when you withdraw in retirement.

It’s a plan built for discipline. Every dollar you save is a promise — one your 65-year-old self will silently thank you for.

How a 401(k) Works

You decide what percentage of your paycheck you want to contribute. Many employers sweeten the deal by matching your contributions — like giving you a small raise for thinking long-term.

For instance, if you earn $10,000 a month and put in 3% ($300), your company may match that with another $300. That’s free money — something no stock tip or crypto app can guarantee.

Over time, this grows through compound interest, which is essentially your money having children, and those children having children of their own.

**The Vesting Period — When Free Money Becomes Your Money**

Employer contributions don’t become fully yours immediately. There’s a vesting period, which means you must work for a certain number of years before you can take the employer’s share with you.
Leave early, and you might lose part of it. Stay loyal, and you walk away with everything.

Think of it as a financial reward for patience — a quiet reminder that consistency pays more than excitement.

Tax Benefits — The Deferred Blessing

The biggest advantage of a 401(k) is its tax treatment.
You don’t pay taxes when you contribute, which reduces your taxable income now. You’ll only pay tax when you withdraw, ideally when you’re retired and in a lower tax bracket.

However, if you withdraw early (before age 59½), you’ll face a 10% penalty, unless it’s for a qualified hardship like medical or funeral expenses.

Contribution Limits

The IRS sets yearly contribution caps. As of recent updates:

You can contribute up to $22,500 annually.
If you’re over 50, you can add a catch-up contribution (around $7,500 more).
The combined limit for you and your employer is roughly $66,000.

These limits ensure the system benefits everyone — not just high earners.

401(k) vs. Other U.S. Retirement Plans

To understand 401(k) fully, it helps to see how it compares with its cousins — 403(b), 457(b), and IRA.

Here’s how the family looks:

Plan Type	Who It’s For	Tax Benefit	Employer Match	Early Withdrawal Penalty	Investment Flexibility	Contribution Limit (Approx.)
401(k)	Private sector employees	Pre-tax	Often	10% before 59½	Moderate to High	$22,500 + match
403(b)	Teachers, hospital & nonprofit workers	Pre-tax	Sometimes	10% before 59½	Moderate (often annuities)	$22,500 + match
457(b)	Government & public employees	Pre-tax	Rare	None (if job ends)	Moderate	$22,500
Traditional IRA	Anyone	Pre-tax	None	10% before 59½	Very High	$6,500
Roth IRA	Anyone	Tax-free withdrawals	None	10% before 59½ (on earnings)	Very High	$6,500
Solo 401(k)	Self-employed	Pre-tax	N/A (you are both roles)	10% before 59½	High	Up to $66,000 total

Advantages of a 401(k)

✅ Employer Match — Free Money:
The biggest edge of 401(k) over IRAs or other plans is matching contributions. It’s rare generosity in finance.

✅ Higher Contribution Limit:
You can save far more annually in a 401(k) than in an IRA, accelerating your retirement fund.

✅ Automatic Discipline:
Money goes in before you even see it. No temptation, no excuses.

✅ Loan Option:
Some 401(k) plans allow you to borrow against your balance — something IRAs don’t offer.

✅ Tax Deferral:
Your contributions reduce your taxable income today and grow tax-deferred for decades.

✅ Employer Backing:
Many 401(k) plans include fiduciary oversight and curated investment options, which can benefit less experienced investors.

Disadvantages of a 401(k)

❌ Limited Investment Options:
Compared to IRAs, which offer thousands of funds and securities, 401(k)s often restrict you to a shortlist chosen by your employer.

❌ Early Withdrawal Penalties:
Touch your savings before 59½, and you pay for your impatience — a 10% penalty plus taxes.

❌ Vesting Restrictions:
Employer contributions may take years to become fully yours. Leave your job too soon, and you might forfeit part of it.

❌ Administrative Fees:
Some plans charge high management fees that quietly eat into long-term gains.

❌ Tax Hit on Withdrawal:
Every withdrawal in retirement is taxed as ordinary income — unlike a Roth IRA, which gives you tax-free peace.

How 401(k) Compares

Let’s simplify:

403(b) is nearly identical but often offers fewer investment choices and smaller matches.
457(b) is better if you work in government and might need funds early — no penalty if you leave the job.
IRA gives freedom but with smaller limits.
Roth IRA offers tax-free withdrawals but no upfront deduction.
Solo 401(k) gives freelancers the best of both worlds — high limits and full control.

So, the 401(k) stands out for one reason — it’s designed for ordinary employees who want extraordinary consistency. It rewards those who stay put, think long-term, and let time do the heavy lifting.

When Can You Withdraw?

At 59½, you can start taking money out without penalty.
At 72, you must start — through Required Minimum Distributions (RMDs).

If you retire early, you can still roll your savings into an IRA to continue tax-deferred growth.

Final Thoughts: The Philosophy of 401(k)

A 401(k) isn’t just a savings plan. It’s a quiet lesson in patience.
You invest not because the market is hot, but because time is — every year, month, and paycheck adds a layer of security.

While others chase instant rewards, the 401(k) investor builds peace — one deduction at a time.

In the end, retirement is not about the number on a statement.
It’s about waking up one morning and realizing — you no longer have to work, but you still can if you want to.

That’s what freedom feels like.