TRAK's Paycheck Calculator

How does a participant understand what a contribution to their 401(k) means? Are there efficient methods for showing a participant not only what their contribution means, but also how it grows, and how it pays-out during retirement? TRAK provides the answers to both of these questions (and more) with it's Paycheck Calculator.

Paycheck Illustrations

TRAK provides a quick, simple way to illustrate to a client how their participation affects their take-home pay--better yet, rather than entering what their contribution is, TRAK allows for entering what their take-home pay will be, quickly calculating the contribution to the 401(k) plan.

The calculation for the Paycheck Calculator is based upon an employer file (entered once for all employees of an employer) and the client's data (which may be imported from a census-data file), shown below.

(Note that TRAK allows for additional Paycheck fields including deferred pay (summer pay), additional retirement plans and local taxes by configuring the employer file, which are hidden in the screen shot above).

On the right hand side of the screen the participant's current paycheck is calculated with the ability to illustrate two other paycheck scenarios. In the image below, two calculated paychecks are shown: the Current and Proposed #1. Note that a 4% value was entered for the 401(k).

But is '4%' really meaningful to a client? What they really think of is their take-home pay. The question could be asked 'How much take-home pay do you really need?' With TRAK, if this individual answered '$3,500', the value could be entered and the calculation would be done instantly (see below)--communicating to a client what that means as a 401(k) contribution.

1040 Federal Return

But are there other monies that a client could be contributing to a 401(k)? Many client's receive a 1040 return, but how easy is it to illustrate moving a Federal 1040 return into a qualified plan? The Paycheck 1040 Calculator illustrates quickly how to move a Federal return from a return (which earns no interest while the Federal government holds the money) to a 401(k) contribution. After entering data for the Federal return (note that a spouse's paycheck may be included but is not for this exampe):

After entering the data, TRAK will calculate what their current 1040 return will be and also illustrate how to reduce the refund (in this case from $2,355 to $375):

This is done by increasing the Federal allowances (from 4 to 8) and taking the increase in the paycheck and moving it to the 401(k) plan:

Factoring the refund results in an additional 401(k) contribution of $240 per paycheck (from $488 without the factoring to $729 with the factoring).

Account Values at Retirement

Additionally, TRAK allows (with a click of a mouse button and a little data entr) participants to see (under hypothetical situations, of course) what the account value will be at retirement and how it will payout during retirement (shown here as a chart, also displayed as a grid):

Additionally, a quick analysis of the cost-of-waiting in terms of account value and retirement income is also instantly available:

How long does this take?

The question must be asked: how long will this illustration take? With imported data (to reduce data-entry time) and last year's 1040 return, experienced TRAK users are illustrating this to their client's in 15 to 20 minutes.

Conclusion

TRAK's Paycheck calculator quickly and efficiently illustrates what it means for a client to participate in their 401(k) plan. It allows for finding additional contributions to the plan through their Federal return and additionally illustrates the growth the the 401(k) account to retirement and the income the account may provide during retirement. This is done in a very time efficient manner that is easily understood by the participant.

To download a full working version of TRAK today click here.