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Insurance offered through OnPay Insurance Agency, LLC (CA License #0L29422)
Updated: February 1, 2024
One of the best ways you can retain great employees, aside from paying competitive salaries, is by offering a 401(k) retirement plan. Employees can participate by contributing either a flat dollar amount or a percentage of their gross salary from each paycheck. Many employers match this contribution up to a certain amount as a perk, but the IRS does not require matching. There is some work involved in getting 401(k) deductions right, so we designed a calculator specifically to help you figure out your employees’ take-home pay quickly and accurately.
Just enter a few details about their plan participation information at the top of this page, and the calculator will do the rest of the work for you.
Why offer a 401k plan for employees?
As tax-deferred retirement accounts, 401(k) plans are beneficial to your employees because contributions are exempt from being taxed this year. Let’s look at a quick example of how this works.
Sally makes $5,000 a month. If we keep things simple and assume she is in the 20% federal tax bracket and pays no other taxes, her tax obligation would be $1,000.
But let’s say she decides to contribute 10% (or $500) of her monthly salary to her 401(k) account. Her taxable income now shrinks to $4,500, so her tax obligation also decreases from $1,000 to $900. That $500 she contributes monthly into her 401(k) account remains tax-free until she is eligible to withdraw it from her plan at age 59.5. (And adds up to a nice retirement fund!)
Note that the maximum amount your employees can contribute to their 401(k) plan does vary each year. For 2024, it is $23,000.
State-by-state payroll tax rates
Our paycheck calculator at the top of this page includes state-specific data, but if you want to get more details about the numbers that go into our tax calculations, choose your state below:
Are there different types of 401(k) plans?
In a nutshell, there are three different types of 401(k) savings plans that an employer can offer. These include traditional 401(k) plans, safe harbor plans, and SIMPLE plans. Below is a short overview of each, and we have an in-depth resource on the basics of 401(k) for small businesses that goes into more detail.
Traditional
A traditional 401(k) plan lets employees save a percentage of their pay through pre-tax payroll deductions, and employers can optionally match contributions. It is subject to non-discrimination testing known as ADP (actual deferral percentage) and ACP (actual contribution percentage), so to help make sure a company’s plan does not unfairly “tip the scales” in favor of their highly compensated employees.
Safe harbor
A safe harbor 401(k) plan skips the non-discrimination testing that comes with a traditional plan but requires employers to make fully vested contributions. It can be combined with other plans.
Simple
These are geared toward small businesses, designed for companies with 100 or fewer employees. It is not subject to testing, and combining this place with other savings programs is not allowed.
In addition to the resource mentioned above, you can see how the IRS defines each plan here.
Does an employer have to match 401(k) contributions?
In most cases, employers are not required by law to match an employee’s 401(k) contributions, though many businesses choose to offer some level of matching even without a mandate in place. That’s because it can help a company stand out from the competition when it comes to recruiting top talent for open positions or encouraging high–performing employees to stay with your company.
Each company is different, and typical 401(k) matches can range from 50% of employee contributions to 100% matches. That said, the decision on whether to match as well as how much to match employee 401(k)s is entirely up to the discretion of each company.
Are employers required to provide access to retirement savings plans such as a 401(k)?
In recent years, some states have passed laws requiring employers to offer their employees access to retirement savings plans. However, this doesn’t mean a business has to provide a 401(k) plan for an employee to save money for post-work life. Furthermore, the requirements for how many employees a company must have before being required to provide access to a retirement savings plan vary by state.
For example, Oregon’s plan is an individual retirement arrangement (IRA, for short) that every employer must provide unless they already have a qualified plan in place.
On the other hand, Virginia’s auto-IRA only requires employers with 25 or more employees to provide their workers access to a retirement savings plan if they don’t already have one on the books. To learn more, see our guide to state-sponsored retirement plans.
Using the calculator at the top of this page, you can quickly determine an employee’s take-home pay once 401(k) deductions are accounted for. That said, there can be other scenarios where getting paychecks right requires a little more wrangling. For example, when an employee departs, you may need to issue a final paycheck. Or if you offer tipped wages or bonuses, you may need to add another step or two to your gross pay formulas for hourly and salaried employees. Below are some other calculators that you may find helpful down the road.