Q:

How do you use a 401(k) calculator to know your take-home pay?

A:

Quick Answer

A 401(k) calculator takes users' annual gross salary, pay period, contribution rate, federal income tax rate and state tax rates into calculation, explains Fidelity Investments. The tool uses these figures to determine how much of a paycheck is left after putting money into a retirement account.

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Full Answer

Employed individuals can use a 401(k) calculator to determine how a pre-tax contribution to a retirement savings account can impact their take-home pay, according to Fidelity Investments. The tool calculates the difference in take-home pay and how it may change if money is deducted from a paycheck before income taxes are calculated. This calculation is based on five major varying factors.

Annual gross salary is a person’s total annual salary before any deductions are taken out, as explained by Fidelity Investments. A pay period refers to how frequently an employer pays an employee. A contribution rate is the percentage of a person’s salary that goes toward the retirement account. Federal income tax rates and state tax rates are also necessary to determine total take-home pay.

Ultimately, the calculations show the total take-home pay amount. However, users can also leverage the tool to determine how to increase take-home pay by contributing money to a 401(k) as opposed to putting the same amount into a taxable account, according to Fidelity Investments.

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