Dear Tax Talk,
I’m planning to increase my 401(k) contribution and I’d like to estimate the effect that different contribution amounts would have on my take-home pay. Are there any tools available that would help me estimate how much would be taken in taxes and such?
Bankrate has a paycheck calculator that takes into account 401(k) contributions, and will let you see how various contribution levels affect your take-home pay.
Your contributions to a 401(k) plan save you income tax withholding at your marginal tax rate. Your marginal rate depends on your filing status and level of income. If you live in a state that imposes income taxes, you’ll also be saving state income taxes. The contributions are subject to FICA and Medicare, which are 6.2 percent and 1.45 percent, respectively.
Ideally, your contributions should be set at a level to maximize your employer’s matching contributions. For example, your employer may offer to match your contributions at 100 percent on your first 5 percent in salary and 50 percent on your next 5 percent in salary. In this example, if you make $100,000 per year and contribute 10 percent to your 401(k), you will contribute $10,000 and your employer will contribute $7,500 on your behalf.
Remember, your contributions are always 100-percent vested should you leave your job, but your employer’s contributions may be subject to a vesting schedule. Retirement contributions are credited in full to your 401(k) account when paid, but your unvested benefits may be subject to forfeiture if you do not stick around at your job.
If you leave your job prior to being fully vested, you may only get part of your employer’s matching contributions. Vesting schedules are used by employers as a form of employee retention.
There are two commonly-followed vesting schedules for employer-matching contributions to a 401(k) or other plan (effective for contributions made after December 31, 2001):
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