If you’ve ever looked at your 401(k) statement and thought your returns looked great, you’re not alone. But what you may not realize is that the way your returns are calculated for your 401(k) is very different than how returns are shown in your IRA or regular brokerage account. And that can make things a little confusing.
What Is Your “Personal Rate of Return”?
Most 401(k) providers display your “Personal Rate of Return” on the home page of your account. Your personal rate of return reflects how your account performed based on when and how much you contributed or withdrew.
It isn’t the same as the return of a market index like the S&P 500, which is a standard measure of how the overall stock market is doing. Your personal return is all about your unique situation.
How 401(k) Returns Are Calculated
With a 401(k), your return is often shown using a method called money-weighted return. That just means it looks at:
- When money is added
- How much is added (both your contributions and any employer contributions)
- When you took money out, if you did
Because this calculation includes your payroll contributions and your company’s contributions, it can make your returns look better than they really are, especially in the short term.
Important to know: this number can be misleading because it not only measures how your investments performed but also includes the effect of you and your employer putting money into the account.
New Temporary Deductions (2025–2028):
| Deduction | Eligibility & Limits | Phaseout Threshold |
|---|---|---|
| Tips deduction | Deduct up to $25,000 of qualified tips received in occupations that customarily earn tips; applies to both employees and self-employed individuals. | Phases out above $150,000 MAGI ($300,000 for joint filers). |
| Overtime deduction | Deduct qualified overtime pay exceeding the regular rate; capped at $12,500 ($25,000 joint). | Phases out above $150,000 MAGI ($300,000 joint). |
| Car loan interest deduction | Deduct interest on loans used to purchase a new personal use vehicle (final assembly in the U.S.); up to $10,000. | Phases out above $100,000 MAGI ($200,000 joint). |
| Senior deduction | Additional $6,000 deduction for taxpayers aged 65+ regardless of Social Security status. | Phases out above $75,000 MAGI ($150,000 joint). |
What About IRA or Brokerage Accounts?
In contrast, returns for IRAs and brokerage accounts are often shown as either:
- Time-weighted return – This ignores when you added or withdrew money and only looks at how the investments themselves performed.
- Total return – This looks at how much your investments gained or lost overall.
These methods are more useful when you’re trying to compare your returns to something like the S&P 500 or a mutual fund’s performance.
Why You Shouldn’t Compare Your 401(k) Return to the S&P 500
It’s easy to look at your personal rate of return and wonder how it stacks up against the S&P 500. But it’s not a fair comparison, for the following reasons:
- The S&P 500 doesn’t take contributions or timing into account. It is made up of approximately 500 U.S. based companies and is not a balanced portfolio. The S&P is all U.S. based stocks, while your account may include bonds.
- Even if your 401(k) return shows 18% and the S&P 500 gained 12%, that doesn’t necessarily mean you “beat the market”. It just means your account grew, partially because you and your employer added money.
- People often use target date funds as their primary investment. These funds generally include U.S. stock, International stock, and bonds, making it more diversified than the S&P 500.
Your personal rate of return isn’t better or worse—it’s just different.
Additionally, OBBBA lifts the debt ceiling by $5 trillion and is projected to increase the federal deficit by approximately $2.8 trillion. This could potentially affect future tax policy and economic conditions.
Given these numerous changes, strategic planning is essential. So, what should you do?
Ready to Make Sense of Your Retirement Accounts?
Understanding how your returns are calculated is a big step toward feeling confident about your retirement strategy. If you’re unsure how your accounts are really performing, we can help you break down the numbers and align them with your long-term plan. Let’s talk. Reach out to see how we can help you make sense of your accounts and keep your strategy on track.
Stay Ahead with Expert Guidance
Sources:
1RMDs begin at age 75 for those born January 1, 1960 or later
2Exceptions to the 10-year rule include: surviving spouse, minor children of the decedent, those critically ill or disabled, and those not more than 10 years younger than the original account holder.
The commentary on this website reflects the personal opinions, viewpoints, and analyses of the Trinity Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Trinity Wealth Management, LLC or performance returns of any Trinity Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Trinity Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. You cannot invest directly in the S&P 500® index.