How a 401(k) builds wealth
Each month you defer a slice of your salary into the plan, and many employers add a matching contribution on top. Both streams are invested and compound at your expected return, so the account grows from three sources: your money, your employer’s money, and the investment growth on both.
The employer match is effectively free money, but it is capped. A "50% match up to 6%" means the employer adds 50 cents for every dollar you contribute, but only on the first 6% of your salary. Contributing at least up to that limit captures the full match.
Reading the results
The ending balance is the projected value at the end of the period. It is split into the total you contributed and the total your employer matched; the rest of the balance is investment growth.
The donut chart shows those three pieces side by side — employee contributions, employer match, and growth — while the line chart traces the balance climbing year by year.
Getting the most from your plan
A few moves meaningfully improve the long-run balance:
- Contribute at least enough to capture the full employer match.
- Raise your contribution rate when you get a pay increase.
- Mind the fund fees, which directly reduce your net return over decades.
- Leave the balance invested when changing jobs rather than cashing out.
What this estimate omits
The projection assumes a constant salary, contribution rate, and return, and it ignores annual IRS contribution limits, taxes on eventual withdrawals, and vesting schedules that may delay your right to the employer match. Treat it as a planning illustration rather than an exact forecast.
Formula
employee/mo = salary·pct/100/12; employer/mo = salary·min(pct, limit)·matchPct/100/12; FV of each streamFrequently asked questions
- What is the match limit?
- It is the most of your salary your employer will match. For example, a 50% match up to 6% means the employer adds 50 cents per dollar on the first 6% of salary you contribute.