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?
-- Don

Dear Don,
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 Dec. 31, 2001).

2 common vesting schedules

• Cliff vesting: This provides no vested benefit until the third year. After three years of employment, you reach the "edge of the cliff," or vest 100 percent. • Graded vesting: This provides no vested benefit until year two. For each additional year that you remain with your employer, your benefits vest 20 percent each year. Under this schedule, you'll be 100 percent vested if you remain with your employer for six years.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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