How Your 401(k) Grows
A 401(k) compounds in two ways: your own contributions and any employer match, both invested and growing tax-deferred. Each year's contributions earn returns not just on the principal, but on all prior growth — that compounding effect accounts for most of the balance in a 30-year projection.
The employer match is the highest-priority contribution to make. If your company matches 50% up to 6% of salary, declining to contribute 6% is equivalent to turning down part of your compensation. Once you've captured the full match, additional contributions above that threshold still grow tax-deferred but without the leverage of matching dollars.
Annual return assumptions matter more than most people expect. At 6% vs 8% over 35 years, a $75,000 salary with 10% contribution produces roughly $1.1M vs $1.7M — a 55% gap from just 2 percentage points. Conservative assumptions (5–6%) are safer for planning; treat anything above 7% as optimistic.
2026 Contribution Limits
For 2026, the IRS elective deferral limit is $23,500. Workers 50 and older can contribute an additional $7,500 catch-up, for a total of $31,000. These limits apply to employee contributions only; employer match and after-tax contributions follow a separate combined limit of $70,000.