401(k) Annuity Calculations

The IRS sets the amount of money you can contribute to a 401(k) annually.

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401(k) annuities help you save for retirement by accepting contributions and adding compounded returns. You don't have to pay taxes on money in traditional 401(k)s until you make withdrawals. The IRS allows you to make larger deposits to 401(k)s than to IRAs, and your employer might match your 401(k) contributions. Your balance in the 401(k) depends on the size of these contributions, the time until you withdraw money and the rate of growth that the annuity experiences.

Step 1

Add 1 to the annuity's anticipated growth rate. For example, if you expect your savings to grow at 6 percent annually, add 1 to 0.06 to get 1.06.

Step 2

Raise this sum to the power of the number of years until you begin withdrawals. For example, if you will make contributions for 10 years, raise 1.06 to the power of 10 to get 1.791.

Step 3

Subtract 1 to get 0.791.

Step 4

Divide this answer by the annuity's growth rate. Continuing the example, divide 0.791 by 0.06 to get 13.18.

Step 5

Multiply this factor by the annual contribution to the 401(k) annuity. For example, if you contribute $5,000 each year and your employer matches this contribution exactly, multiply 13.18 by $10,000 to get $13,180. This is the 401(k) annuity's worth after 10 years.