Increase Contribution to 401k - question

[Disneyluv111]

I have a question. We want to increase our contribution to the 401k and I want to know when they take out federal tax, it will be off the gross amount or the amount after the 401k deduction? I hope I made sense. It's hard to ask a question when you barely understand this stuff!

 

[havaneselover]

I have a question. We want to increase our contribution to the 401k and I want to know when they take out federal tax, it will be off the gross amount or the amount after the 401k deduction? I hope I made sense. It's hard to ask a question when you barely understand this stuff!

The amount after the deduction. If your income is unchanged, you increase your contribution, and you don't change your withholdings, they will take out less in taxes.

 

[Disneyluv111]

The amount after the deduction. If your income is unchanged, you increase your contribution, and you don't change your withholdings, they will take out less in taxes.

Thank you that helps! Our income did increase quite a bit, so the taxes will go up no matter what? If I increase the contribution would that make the check amount smaller?
Increase contribution + more taxes taken out + pay increase = small check? LOL Sorry I'm still new to this 401k stuff!

 

[tvguy]

Thank you that helps! Our income did increase quite a bit, so the taxes will go up no matter what? If I increase the contribution would that make the check amount smaller?
Increase contribution + more taxes taken out + pay increase = small check? LOL Sorry I'm still new to this 401k stuff!

No way for us to know. Too many variables. The 401k contribution will reduce your taxes, but a pay hike could boost you into a higher tax bracket, but that 401 k contribution could put you back in a lower tax bracket. Just depends where your income hits on the tax tables.

 

[nalajms]

This assumes you're putting it into a Pre-tax 401k. My work offers both a pre and after-tax 401k. I think there's also a limit on how much you can put in depending on your salary and position. Not sure if it's a federal rule or varies by company.

Google 401k paycheck calculator, it should give you a better estimate.

 

[Disneyluv111]

This assumes you're putting it into a Pre-tax 401k. My work offers both a pre and after-tax 401k. I think there's also a limit on how much you can put in depending on your salary and position. Not sure if it's a federal rule or varies by company.

Google 401k paycheck calculator, it should give you a better estimate.

Thank you! I'm going to do that right now!

 

[tvguy]

This assumes you're putting it into a Pre-tax 401k. My work offers both a pre and after-tax 401k. I think there's also a limit on how much you can put in depending on your salary and position. Not sure if it's a federal rule or varies by company.

Google 401k paycheck calculator, it should give you a better estimate.

Yes, there can be limits under federal law and some plans have plan specific caps. My wife's company limits 401K contributions to a max of 8% of your gross pay, with an upper dollar amount cap. They say federal law required the cap because the company has a pension plan. Problem is, the pension plan only covers non-union employees, and my wife is in a union position and gets no pension, but still is limisted to 8%.

 

[supersnoop]

401k contributions can also be limited if you are considered a "highly compensated employee."

But, in general, if you use to make $75k and now make $85k, and you increase your 401k contribution by the difference ($10k), then your check should be exactly the same. Your paycheck withholding is based on your taxable income, and 401k contributions are not taxable.

 

[havaneselover]

401k contributions can also be limited if you are considered a "highly compensated employee."

But, in general, if you use to make $75k and now make $85k, and you increase your 401k contribution by the difference ($10k), then your check should be exactly the same. Your paycheck withholding is based on your taxable income, and 401k contributions are not taxable.

Well, 401 k doesn't reduce FICA wages, so if you got a $10K raise and put that extra $10K in your 401 k your check wouldn't be exactly the same because you'd be paying more FICA taxes.

 

[starry_solo]

Ultimately, it depends on your tax bracket/income level. Increasing it to the max amount is usually a good idea and if you have other deductions to reduce your income, that is also good

 

[tvguy]

Well, 401 k doesn't reduce FICA wages, so if you got a $10K raise and put that extra $10K in your 401 k your check wouldn't be exactly the same because you'd be paying more FICA taxes.

Nor does it reduce your Expected Family Contribution when filling out a FAFSA unless you are very close to retirement age..

 

[NY Pirate Princess]

You are thinking along the right lines of putting that money away for your future AND decreasing your tax debt. One of my single coworkers was able to get under the 15% tax bracket avoiding the 25% one and a tax bill this year by upping his contribution to our 401K at the end of 2014. Be careful where you put the money, talk to the person at work who runs the thing, don't invest in anything you don't understand, and don't keep your contributions in company stock any longer than you have to. Most of the people that took the biggest hits in the 2008 nosedive were invested far too aggressively for their tolerance. This is bound to be a year of crazy swings up and down. If you are going to pull your cash out during a down swing investigate safer portfolio mixes or put that new money somewhere else!

 

[spears2008]

if you google "paycheck withholding calculator" you can pull up a calculator that will let you put in your income, number of exemptions, etc. and then play with your 401K contributions, all while seeing how your take home pay and tax withholding will be impacted.