A 401(k) calculator is a handy tool that assists an employee to estimate the amount necessary for retirement through the development of a growth pattern by 401(k) contribution. The future can feel unpredictable, but when it comes to retirement, you don't have to rely on guesswork. Rather than wondering if you're saving enough for a timely retirement, use a 401(k) calculator.

This free tool allows you to estimate your 401(k) balance at retirement, taking into account your contributions, your employer's matching contributions, your expected investment returns, and the time remaining until retirement.

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If your employer provides your 401(k), you'll also need the following important employer information:

• The match from your employer, that is the percentage of the contribution you make that your employer has promised to match (your employer may agree to match 50 percent of the contribution you make).
• The highest percentage they will match annually from you, meaning the maximum that your employer can contribute; for example, you could be contributing 15% of your salary, but your employer only matches to 5%.

This information should be available in the package you received when you joined your employer-sponsored 401(k) plan. Companies also sometimes include it in their employee handbooks. If you can't find it, you might have to contact your company's HR department for more details.

Additional 401(k) retirement calculator terms and definitions

The following terms don't show up on the calculator above, but they're important to understand, especially if you're thinking of changing your contribution amount.

Contribution limit

Because 401(k) contributions are tax advantaged, meaning you don't pay taxes on them until you start withdrawing funds, the IRS limits the amount of money you can add to your 401(k) each year. For 2020, that annual contribution limit is $19,500. Employees over the age of 50 are allowed to make an additional contribution of $6,500—if that describes you, your maximum limit is actually $26,000.

Bear in mind that employer-matching contributions do not count toward your contribution limit. For instance, if you contribute the maximum amount (for employees under 50) of $19,500 and your employer offers a 50% contribution match, you'll end the year with a contribution total of $29,250.

Required minimum distribution (RMD)

A required minimum distribution (RMD) is the amount the IRS requires you to withdraw from your 401(k) account each year after retirement. The IRS requires most retirees to start making these minimum withdrawals at age 72. You can use the IRS's RMD worksheet to calculate how much you'll be required to withdraw each year.

Annual compounded rate

Like most retirement calculators, this particular calculator assumes that you're making compound interest on your 401(k) investments each year. With compound interest, you don't just earn interest on your original deposit (a.k.a. principal): you also earn interest on the interest you accrue.

The annual compounded rate of return is a little tricky to calculate, and like most investment calculations, it can't account for the market's (sometimes extreme) fluctuations. As a result, your actual rate of return might be much different than the estimated percentage you entered in the calculator above.

Unfortunately, you can't do much to change that—the stock market is what it is, and every investment is a gamble of sorts. Just know that the best a calculator can do is give you an estimate, which isn't the same as a guaranteed payout. If you're not completely sold on your current 401(k) investing decisions, we recommend chatting with a financial planner or advisor.