A painless way to help build your 401(k)
Tax Tip of the Week
December 24, 2018
A painless way to help build your 401(k)
If you participate in a 401(k) plan at work, you can build up a tidy sum for retirement by deferring part of your salary to your account, within generous tax law limits. For 2018, you may defer up to $18,500 ($19,000 in 2019), plus you can kick in an extra $6,000 if you're 50 or older.
The salary deferrals, which are deducted from your regular paychecks, are often supplemented by matching employer contributions up to a stated limit. The more you stockpile for retirement, the better.
Do this if saving seems tricky
It can be painful to siphon away money needed to pay current expenses like the mortgage on your house and your car loan. Some people simply can't do it or only contribute a small amount to their 401(k) during the year.
If this is the case for you, when your wages clear the Social Security wage base, consider allocating some or all of your payroll tax savings to your 401(k) account. In other words, instead of paying Uncle Sam, use the money to pay yourself. As a result, you'll increase your retirement savings without any reduction in your take-home pay.
For example, suppose you're paid $150,000 a year, or $21,600 above this year's wage base. After clearing the wage base, you may allocate Social Security tax savings of $1,339.20 (6.2 percent of $21,600) to your 401(k) account and still take home the same dollars.
How much can you allocate?
For 2018, you must pay the 6.2 percent Social Security tax on the first $128,400 of wages ($132,900 in 2019). The 1.45 percent Medicare tax applies to all wages. You can do what you like with the payroll tax savings at the end of the year.
Next year, you can go back to your previous deferral amount until you clear the wage base later in 2019. Arrange these moves with your payroll department. Give us a call if you have questions about how this savings strategy will affect your taxes.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2018
December 24, 2018
A painless way to help build your 401(k)
If you participate in a 401(k) plan at work, you can build up a tidy sum for retirement by deferring part of your salary to your account, within generous tax law limits. For 2018, you may defer up to $18,500 ($19,000 in 2019), plus you can kick in an extra $6,000 if you're 50 or older.
The salary deferrals, which are deducted from your regular paychecks, are often supplemented by matching employer contributions up to a stated limit. The more you stockpile for retirement, the better.
Do this if saving seems tricky
It can be painful to siphon away money needed to pay current expenses like the mortgage on your house and your car loan. Some people simply can't do it or only contribute a small amount to their 401(k) during the year.
If this is the case for you, when your wages clear the Social Security wage base, consider allocating some or all of your payroll tax savings to your 401(k) account. In other words, instead of paying Uncle Sam, use the money to pay yourself. As a result, you'll increase your retirement savings without any reduction in your take-home pay.
For example, suppose you're paid $150,000 a year, or $21,600 above this year's wage base. After clearing the wage base, you may allocate Social Security tax savings of $1,339.20 (6.2 percent of $21,600) to your 401(k) account and still take home the same dollars.
How much can you allocate?
For 2018, you must pay the 6.2 percent Social Security tax on the first $128,400 of wages ($132,900 in 2019). The 1.45 percent Medicare tax applies to all wages. You can do what you like with the payroll tax savings at the end of the year.
Next year, you can go back to your previous deferral amount until you clear the wage base later in 2019. Arrange these moves with your payroll department. Give us a call if you have questions about how this savings strategy will affect your taxes.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
