Retirement Contribution Effects on Your Paycheck
An employer-sponsored retirement savings account could be one of your best tools for creating a secure retirement. It provides two important advantages. First, all contributions and earnings are tax-deferred. You only pay taxes on contributions and earnings when the money is withdrawn. Second, many employers provide matching contributions to your account, which can range from 0% to 100% of your contributions. Use this calculator to see how increasing your contributions to a 401(k), 403(b) or 457 plan can affect your paycheck as well as your retirement savings. This calculator uses the 2015 withholding schedules, rules and rates (IRS Publication 15).
Retirement Contribution Effects on Your Paycheck Definitions
- Retirement savings current
- This is the percentage of your annual salary you contribute to your retirement plan each year. While your plan may not have a deferral percentage limit, this calculator limits deferrals to 75% to account for FICA (Social Security and Medicare) taxes.
- Retirement savings new
- This is the new percentage of your annual salary you would like to compare your current contributions to. While your plan may not have a deferral percentage limit, this calculator limits deferrals to 75% to account for FICA (Social Security and Medicare) taxes.
- Gross pay
- This is your gross pay, before any deductions, for the pay period. Please enter a dollar amount from $1 to $1,000,000.
- Pay period
- This is how often you are paid. Your selections are: Weekly (52 paychecks per year), Every other week (26 paychecks per year), Twice a month (24 paychecks per year), and Monthly (12 paychecks per year).
- Filing status
- This is your income tax filing status. The choices are “Single” and “Married.” Choose “Married” if you are married or file as “head of household.” Choose “Single” if you file your taxes as a single person or if you are married but file separately.
- Number of allowances
- When your Federal income tax withholdings are calculated, you are allowed to claim allowances to reduce the amount of the Federal income tax withholding. In 2015, each allowance you claim is equal to $4,000 of income that you expect to have in deductions when you file your annual tax return. The number of allowances you should claim depends largely on the number of dependents you have and your itemized deductions. This calculator allows from 0 to 99 allowances.
- State and local taxes
- This is the percentage that will be deducted for state and local taxes. We take your gross pay, minus $4,000 per allowance, times this percentage to calculate your estimated state and local taxes. Please note, this calculator can only estimate your state and local withholdings. The tax rate displayed is an assumption that may or may not be relevant to your situation.
- Pre-tax deductions
- Enter any payroll deductions made by your employer that are made with pre-tax income. This might include your health insurance, life insurance among other pre-tax deductions.
- Post-tax deductions
- Enter any payroll deductions made by your employer that are made with after-tax income.
- Post-tax reimbursements
- Enter any reimbursements made by your employer that are after-tax.
- Expected annual salary change
- The expected annual increase in your salary. We use this to project future contributions and matches to your savings plan.
- Year to date income
- Income from your employer that you have been paid during the current year, before the current payroll period. We use this amount to determine if you are still required to pay FICA OASDI for the current payroll period.
- Social Security tax
- For 2015, Social Security tax is calculated as your gross earnings times 6.2%. For 2015, incomes over $118,500 that have already had the maximum Social Security tax of $7,347 withheld will not have additional withholdings. Please note that if you have other wages or employers this calculator does not make any assumptions as to the total Social Security tax withheld for the current year other than the actual inputs for this calculator. This tax is also referred to as the Federal Insurance Contributions Act Old Age Survivors and Disability Insurance (FICA OASDI).
- Medicare tax
- Medicare tax is calculated as your gross earnings times 1.45%. Unlike the Social Security tax, there is no annual limit to the Medicare tax. Starting in 2013, an additional Medicare tax of 0.9% is withheld on all gross earnings paid in excess of $200,000 in a calendar year. If you enter an amount for the year-to-date gross earnings, this additional Medicare tax will be calculated based on the current period’s gross earnings that exceed the annual $200,000 threshold. If no year-to-date amount is entered, any additional Medicare tax withholding will be calculated only for any gross earnings in excess of $200,000 for the current payroll period. If year-to-date wages prior to the current payroll period have exceeded $200,000, the year-to-date wages must be entered to calculate an accurate additional Medicare tax.
- Federal tax withholding calculations
- Federal income tax withholdings were calculated by:
- Multiplying taxable gross wages by the number of pay periods per year to compute your annual wage.
- Subtracting the value of allowances allowed (for 2015, this is $4,000 multiplied by withholding allowances claimed).
- Determining your annual tax by using the tables below (single and married rates, respectively).
- Dividing the amount of tax by the number of pay periods per year to arrive at the amount of federal withholding tax to be deducted per pay period.
Single Withholding Rates 2015* Annual taxable income between these amounts Annual withholding Withhold additional % of income over this amount $0.00 – $2,300.00 $0.00 $2,300.00 – $11,525.00 $0.00 plus 10% of income over $2,300.00 $11,525.00 – $39,750.00 $922.50 plus 15% of income over $11,525.00 $39,750.00 – $93,050.00 $5,156.25 plus 25% of income over $39,750.00 $93,050.00 – $191,600.00 $18,481.25 plus 28% of income over $93,050.00 $191,600.00 – $413,800.00 $46,075.25 plus 33% of income over $191,600.00 $413,800.00 – $415,500.00 $119,401.25 plus 35% of income over $413,800.00 $415,500.00 – (no limit) $119,996.25 plus 39.60% of income over $415,500.00*Source: https://www.irs.gov Publication 15 Income Tax Withholding Tables for 2015 Married Withholding Rates 2015* Annual taxable income between these amounts Annual withholding Withhold additional % of income over this amount $0.00 – $8,600.00 $0.00 $8,600.00 – $27,050.00 $0.00 plus 10% of income over $8,600.00 $27,050.00 – $83,500.00 $1,845.00 plus 15% of income over $27,050.00 $83,500.00 – $159,800.00 $10,312.50 plus 25% of income over $83,500.00 $159,800.00 – $239,050.00 $29,387.50 plus 28% of income over $159,800.00 $239,050.00 – $420,100.00 $51,577.50 plus 33% of income over $239,050.00 $420,100.00 – $473,450.00 $111,324.00 plus 35% of income over $420,100.00 $473,450.00 – (no limit) $129,996.50 plus 39.60% of income over $473,450.00*Source: Source: https://www.irs.gov Publication 15 Income Tax Withholding Tables for 2015
- Plan type
- Choose the type of plan your employer sponsors. The choices are 401(k), 403(b) or government 457. Each choice includes an option for pre-tax (“traditional” contributions) and after-tax (“Roth” contributions). Except for the differences between a pre-tax contribution and an after-tax contribution, your plan type will not affect the calculations, it is only used to label the generated results.
- Current balance
- The current balance of your retirement plan.
- Current age
- Your current age.
- Age of retirement
- Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions. So if you retire at age 65, your last contribution occurs when you are actually 64.
- Annual contribution limits
- Your total contribution for one year is based on your annual salary times the percent you contribute. However, your annual contribution is also subject to certain maximum total contributions per year. The annual maximum for 2015 is $18,000. If you are age 50 or over, a “catch-up” provision allows you to contribute additional $6,000 into your account. It is also important to note that employer contributions do not affect an employee’s maximum annual contribution limit. The catch-up amount is indexed for inflation in increments of $500.
It is important to note that some employees are subject to another form of contribution limitations. Employees classified as “Highly Compensated” may be subject to contribution limits based on their employer’s overall participation. If you expect your salary to be $120,000 or more in 2015 or was $115,000 or more in 2014, you may need to contact your employer to see if these additional contribution limits apply to you.
- Employer match
- An employer match is in addition to your annual contributions. It is based on a percentage of your annual contributions. This range can be anywhere from 0% to 100%.
For example, let’s assume the employer matches 50% of the employee’s contributions up to 6% of their salary. The employee earns $100,000 per year and contributes 10%. The results would be:
- $10,000 from the employee
- $3,000 from the employer (which is 50% of $6,000 or 6% of the annual salary)
- Total: $13,000
Please read the definition for “Employer maximum” for a detailed description of maximum employer matching contributions. It is also important to note employer contributions do not affect the maximum amount allowed to be contributed by an employee. Matching contributions can be subject to a vesting schedule. See your plan information for details.
- Employer maximum
- This is the maximum percent of your salary matched by your employer regardless of the amount you decide to contribute. For example, let’s assume your employer has a 50% match, up to a maximum of 6% of your annual salary. If you have an annual salary of $25,000 and contribute 6%, your annual contribution is $1,500. With a 50% match, your employer will add another $750 to your 401(k) account. If you increase your contribution to 10%, your annual contribution is $2,500 per year. Your employer match, however, is limited to the first 6% of your salary and remains at $750.