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Should I contribute a small amount to a traditional 401k to reduce tax burden
That previous few years I’ve owed a small quantity of taxes. Roughly $500 or much less. This yr I’m set to contribute $23k to my Roth 401k by the top of the yr and my firm match might be roughly $3.7k (3%) or so. I’ve already maxed out my Roth IRA and I’m questioning if there’s a profit to contribute some to a standard 401k this yr, perhaps contribute $500 to it?
Will this cut back my tax burden and if that’s the case, sooner or later would it not be greatest to do it in my IRA or a 401k? I file my taxes as Single.
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Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
You might be higher off switching your Roth 401(ok) contributions to conventional.
Is $500 your tax legal responsibility or the quantity you owed after withholdings? Roth/conventional alternative has nothing to do with the latter.
You make $120k yearly based mostly in your match (3% = 3.7k) and also you file single, which places the highest of your revenue into 24% bracket. You need to swap all of your 401(ok) contributions to conventional, based mostly on the unfinished information that you simply offered. Or, present extra information for higher recommendation.
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
Seems like you’ve round $123K of revenue. For a singler filer, that places you into the 24% tax bracket. I’d undoubtedly be going all or principally conventional for the 401k in your state of affairs, to avoid wasting the 24% federal revenue tax (and 22% beneath that). The one exception could be in the event you anticipated very speedy revenue progress, that may put you right into a a lot larger tax bracket within the subsequent a number of years.
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
Hyperchicken wrote: ↑Tue Sep 03, 2024 3:44 pm
What’s your marginal tax fee?You might be higher off switching your Roth 401(ok) contributions to conventional.
Is $500 your tax legal responsibility or the quantity you owed after withholdings? Roth/conventional alternative has nothing to do with the latter.
It seems to be prefer it was probably 24% in 2023 with 7.65% in FICA. No state revenue tax. This yr I’ve gotten two raises and am uncertain what my whole might be nonetheless probably 24%. In 2023 I made $110k and this yr my presently wage after just a few raises is $128k.
I’m not certain if the $500 is because of withholdings or not. I assume it’s a tax legal responsibility.
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
houchen wrote: ↑Tue Sep 03, 2024 3:57 pmHyperchicken wrote: ↑Tue Sep 03, 2024 3:44 pm
What’s your marginal tax fee?You might be higher off switching your Roth 401(ok) contributions to conventional.
Is $500 your tax legal responsibility or the quantity you owed after withholdings? Roth/conventional alternative has nothing to do with the latter.
It seems to be prefer it was probably 24% in 2023 with 7.65% in FICA. No state revenue tax. This yr I’ve gotten two raises and am uncertain what my whole might be nonetheless probably 24%. In 2023 I made $110k and this yr my presently wage after just a few raises is $128k.
I’m not certain if the $500 is because of withholdings or not. I assume it’s a tax legal responsibility.
If all you are attempting to do is keep away from owing $500 on subsequent yr’s tax return, then simply enhance your payroll withholding by $500.
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Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
02nz wrote: ↑Tue Sep 03, 2024 3:50 pm
Seems like you’ve round $123K of revenue. For a singler filer, that places you into the 24% tax bracket. I’d undoubtedly be going all or principally conventional for the 401k in your state of affairs, to avoid wasting the 24% federal revenue tax (and 22% beneath that). The one exception could be in the event you anticipated very speedy revenue progress, that may put you right into a a lot larger tax bracket within the subsequent a number of years.
Very shut. In 2023 my wage was $110k. In 2024 after just a few raises it’s $128k. And my marginal tax fee was 24% in 2023 and I think will probably be the identical this yr.
Is there any good literature on this? The place I can get a greater understanding of when to contribute to a Roth and when to not? Reasonably than, “low revenue, go Roth”.
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
In the event you owed taxes once you filed then altering to a standard 401k will not have an effect on that as a result of your employer will not withhold taxes for thr 401k contribution anyhow. You can also make an estimated tax fee or simply enhance your withholdings. Possibly you owed resulting from financial savings account curiosity, dividends or capital good points?
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
houchen wrote: ↑Tue Sep 03, 2024 4:02 pm02nz wrote: ↑Tue Sep 03, 2024 3:50 pm
Seems like you’ve round $123K of revenue. For a singler filer, that places you into the 24% tax bracket. I’d undoubtedly be going all or principally conventional for the 401k in your state of affairs, to avoid wasting the 24% federal revenue tax (and 22% beneath that). The one exception could be in the event you anticipated very speedy revenue progress, that may put you right into a a lot larger tax bracket within the subsequent a number of years.Very shut. In 2023 my wage was $110k. In 2024 after just a few raises it’s $128k. And my marginal tax fee was 24% in 2023 and I think will probably be the identical this yr.
Is there any good literature on this? The place I can get a greater understanding of when to contribute to a Roth and when to not? Reasonably than, “low revenue, go Roth”.
The Bogleheads wiki has a dialogue of “Conventional vs. Roth”. In your case, in the event you can defer your taxes within the 24% bracket through your 401k contributions, after which withdraw in retirement with a decrease fee, that is a win for you.
It sounds such as you, like many (most?) individuals, should not as aware of the main points of your tax state of affairs as you would be. You’ll do your self a number of good in the event you can brush up on this. The online is stuffed with sources – in case you have questions, I am assured the discussion board will assist.
Retired 12/31/2015, age 58 years 77 days (however who’s counting?)
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
mhadden1 wrote: ↑Tue Sep 03, 2024 5:00 pmhouchen wrote: ↑Tue Sep 03, 2024 4:02 pm02nz wrote: ↑Tue Sep 03, 2024 3:50 pm
Seems like you’ve round $123K of revenue. For a singler filer, that places you into the 24% tax bracket. I’d undoubtedly be going all or principally conventional for the 401k in your state of affairs, to avoid wasting the 24% federal revenue tax (and 22% beneath that). The one exception could be in the event you anticipated very speedy revenue progress, that may put you right into a a lot larger tax bracket within the subsequent a number of years.Very shut. In 2023 my wage was $110k. In 2024 after just a few raises it’s $128k. And my marginal tax fee was 24% in 2023 and I think will probably be the identical this yr.
Is there any good literature on this? The place I can get a greater understanding of when to contribute to a Roth and when to not? Reasonably than, “low revenue, go Roth”.The Bogleheads wiki has a dialogue of “Conventional vs. Roth”. In your case, in the event you can defer your taxes within the 24% bracket through your 401k contributions, after which withdraw in retirement with a decrease fee, that is a win for you.
It sounds such as you, like many (most?) individuals, should not as aware of the main points of your tax state of affairs as you would be. You’ll do your self a number of good in the event you can brush up on this. The online is stuffed with sources – in case you have questions, I am assured the discussion board will assist.
I undoubtedly have to get extra aware of it and can begin with the BogleHeads wiki. Completely will ask extra questions right here.
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Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
Owing $500, at your revenue, is nearly an ideal candy spot. I get making an attempt to get it nearer to $0, which is okay, however keep in mind, each greenback refund you get means you’ve given the federal government an curiosity free mortgage for that quantity. So, owing $500 means, in the event you invested like a Boglehead, you set each greenback you would to work in your future, and over-shot by a really small margin.
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Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
Guessing it was extra like $10,000+. Pondering you paid $500 is only a nugatory assertion. I’m guessing you have been have been quick $500 from witholding vs precise taxes due in April.
Okay – finish of slam. Most People suppose that method. I get it. And in the event you bought $700 again, they suppose they really bought some form of windfall.
In the event you have been solely off by $500 – that’s fairly good.
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
nostresshere wrote: ↑Wed Sep 04, 2024 2:57 pm
PLEASE PLEASE PLEASE don’t say you paid $500 revenue tax.Guessing it was extra like $10,000+. Pondering you paid $500 is only a nugatory assertion. I’m guessing you have been have been quick $500 from witholding vs precise taxes due in April.
Okay – finish of slam. Most People suppose that method. I get it. And in the event you bought $700 again, they suppose they really bought some form of windfall.
In the event you have been solely off by $500 – that’s fairly good.
I didn’t say I paid $500 in revenue tax. I stated I owed $500. Implying an extra $500.
Re: Should I contribute a small amount to a traditional 401k to reduce tax burden
houchen wrote: ↑Thu Sep 05, 2024 7:48 pmnostresshere wrote: ↑Wed Sep 04, 2024 2:57 pm
PLEASE PLEASE PLEASE don’t say you paid $500 revenue tax.Guessing it was extra like $10,000+. Pondering you paid $500 is only a nugatory assertion. I’m guessing you have been have been quick $500 from witholding vs precise taxes due in April.
Okay – finish of slam. Most People suppose that method. I get it. And in the event you bought $700 again, they suppose they really bought some form of windfall.
In the event you have been solely off by $500 – that’s fairly good.
I didn’t say I paid $500 in revenue tax. I stated I owed $500. Implying an extra $500.
What you truly did say was, “ I’m not certain if the $500 is because of withholdings or not. I assume it’s a tax legal responsibility.”.
The $500 was not your tax legal responsibility. Your tax legal responsibility was probably about $10k. Let’s assume precisely $10K and the $500 represents the portion of that legal responsibility not coated by the $9500 withheld by employer.
