How to Calculate 401(k) Net Worth

by Cynthia Gomez

Pretax deductions from your paycheck that get contributed to a 401(k) retirement account may seem insignificant, but over time and with the help of employer matches, can add up to big savings. However, the figure you see when you receive a statement from your 401(k) custodian does not reflect the net worth of your 401(k) account. To find this, you’ll need to do some simple math.

1. Find the total vested amount in your 401(k) by looking at a recent statement. This is the amount of money that, based upon your years of service to your company, is entirely yours if you were to leave the company today. It’s different than the total amount in the 401(k) because the total amount tells you how much money you would have if you were fully vested in the plan. That’s essentially counting your chickens before they’ve hatched.

2. Deduct the payoff amount for any outstanding loans you have against your 401(k) account, since the full amount would become due in full if you left your company today.

3. Subtract the federal taxes you would have to pay on your 401(k) if you were to cash out of the plan. This will depend on your tax bracket. Don’t go by what tax bracket you expect to be at when you retire, but rather your current tax bracket. You can find out your tax bracket by visiting the Internal Revenue Service’s website.

4. Deduct any state and local taxes imposed on your 401(k) account if you were to cash it out today. State tax for 401(k) plans is the same as for any other ordinary income for your state.

5. Subtract the 10-percent tax penalties for early withdrawal if you are under the age of 59 1/2. The resulting amount is the net worth of your 401(k) account, or what you would end up with if you cashed it out today.

Items you will need

  • Calculator
  • 401(k) statement

Photo Credits

  • BananaStock/BananaStock/Getty Images