I am sure this gets discussed a lot this time of year as folks get hit with a tax burden, and I don’t think that I have an issue this year, but trying to plan out this year to save from owing next year. What are you all doing, if much, to lower your taxable income, or are you just paying the IRS and doing what you prefer with your post tax dollars? Not looking for tax shelters, unless someone has a good one that doesn’t actually cost you in the long run.
I have a 401k through my employer that I can max out but I don’t qualify for any traditional IRA contributions, or the amount will be really low after the phase out calculation. Can max out my HSA which if not used can roll into an IRA later. I know HSAs don’t really lower taxable income because you pay the taxes when you spend it, but if I max out I am sure we won’t need the full balance and can covert to retirement savings at a later date.
Land, real estate, vacation homes,?
I know Ramsey doesn’t recommend puttting more in 401k than enough to get the match, but just trying to figure if saving the federal tax burden is worth it to max these things out, or come up with another plan.
Whether or not to go beyond your 401k match can’t be a hard and fast rule. It depends on your current vs future income, current bracket status, and your best guess at how taxable that 401k income will be when you are retired.
To me, it is worthwhile because putting a little more in 401k now will keep me one tax bracket lower, and I will still have enough non-401k money elsewhere to depend on should we need to liquidate it. If you HAVE to have access to the money, don’t put it in 401k… but the extra I am putting in counts 150% to start ($1 i put in costs me 65c in real money), and gives me an overall bracket reduction on my whole family income.
Whether or not to go beyond your 401k match can’t be a hard and fast rule. It depends on your current vs future income, current bracket status, and your best guess at how taxable that 401k income will be when you are retired.
To me, it is worthwhile because putting a little more in 401k now will keep me one tax bracket lower, and I will still have enough non-401k money elsewhere to depend on should we need to liquidate it. If you HAVE to have access to the money, don’t put it in 401k… but the extra I am putting in counts 150% to start ($1 i put in costs me 65c in real money), grows tax free, and gives me an overall bracket reduction on my whole family income.
401k, using pretax dollars don’t grow tax free.
You pay the taxes on the distributions.
Geronimo, you can always give more to your favorite charity if you want to lower your burden to Uncle Sam.
Whether or not to go beyond your 401k match can’t be a hard and fast rule. It depends on your current vs future income, current bracket status, and your best guess at how taxable that 401k income will be when you are retired.
To me, it is worthwhile because putting a little more in 401k now will keep me one tax bracket lower, and I will still have enough non-401k money elsewhere to depend on should we need to liquidate it. If you HAVE to have access to the money, don’t put it in 401k… but the extra I am putting in counts 150% to start ($1 i put in costs me 65c in real money), grows tax free, and gives me an overall bracket reduction on my whole family income.
401k, using pretax dollars don’t grow tax free.
You pay the taxes on the distributions.
Geronimo, you can always give more to your favorite charity if you want to lower your burden to Uncle Sam.
Whether or not to go beyond your 401k match can’t be a hard and fast rule. It depends on your current vs future income, current bracket status, and your best guess at how taxable that 401k income will be when you are retired.
To me, it is worthwhile because putting a little more in 401k now will keep me one tax bracket lower, and I will still have enough non-401k money elsewhere to depend on should we need to liquidate it. If you HAVE to have access to the money, don’t put it in 401k… but the extra I am putting in counts 150% to start ($1 i put in costs me 65c in real money), grows tax free, and gives me an overall bracket reduction on my whole family income.
It also depends on your discipline. People are less likely to touch money in their 401K and probably more likely to save if it’s being taken out of the paycheck by the employer.
Also, it’s not too hard to get to 401K money. Most employers will let you take loans against it or withdrawals (with penalty).
Also, I don’t know what you mean by an “overall bracket reduction”… That smells of a misconception.
I was going to say the same thing. There is no such thing as an overall bracket reduction. You still pay 15% on the first amount, then 25%, etc. Just because you “jump” to a higher bracket doesn’t mean 100% of your income is taxed at that higher %.
I was going to say the same thing. There is no such thing as an overall bracket reduction. You still pay 15% on the first amount, then 25%, etc. Just because you “jump” to a higher bracket doesn’t mean 100% of your income is taxed at that higher %.
How old are you? Probably not old ebough to do the “catch up” on 401k. My dad is doing that now…putting a ton in retirement and showing very little income…
No, not old enough for that. But I am wrestling with whether or not to even max out the $18k. Not sure I want to have that much retirement income to have to pay taxes on in the future. But if that is the smart play, then I might.
Thinking about the benfits of rental property as I remember the best deduction years was when I was building houses and able to write off taxes, mileage, cell phones, tools, etc. Thinking I need something like that to get the most benefit.
No, not old enough for that. But I am wrestling with whether or not to even max out the $18k. Not sure I want to have that much retirement income to have to pay taxes on in the future. But if that is the smart play, then I might.
What income can you have that you aren’t required to pay taxes on? If you aren’t doing anything with it right now, you are already paying taxes on it.
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Thinking about the benfits of rental property as I remember the best deduction years was when I was building houses and able to write off taxes, mileage, cell phones, tools, etc. Thinking I need something like that to get the most benefit.
Something worthwhile to look into. This will be my next focus after I close on my construction.
Obviously many variables come into play and many strategies are available to implement! You could consider a “backdoor” Roth IRA with after tax money. Your line of thinking is correct, most end up at retirement being top heavy in IRA’s and 401K’s of which distributions count as ordinary income. Diversifying/controlling your tax liabilities at retirement can add tremendous value to your overall “wealth”.
No, not old enough for that. But I am wrestling with whether or not to even max out the $18k. Not sure I want to have that much retirement income to have to pay taxes on in the future. But if that is the smart play, then I might.
What income can you have that you aren’t required to pay taxes on? If you aren’t doing anything with it right now, you are already paying taxes on it.
quote:
Thinking about the benfits of rental property as I remember the best deduction years was when I was building houses and able to write off taxes, mileage, cell phones, tools, etc. Thinking I need something like that to get the most benefit.
Something worthwhile to look into. This will be my next focus after I close on my construction.
If I max out my 401k, the money going in the account is pre-tax, and it lowers my annual taxable income. If I max out year after year, that would likely be my main source of income at retirement, and then I would have to pay taxes on it in retirement. Basically just deferring the taxes, and hoping to maybe save 10% of income tax way down the line. Doesn’t sound all that interesting to me when I could put it into something else with after tax dollars. Just don’t want to be too heavy on retirement income that is susceptible to income tax at that age.
No, not old enough for that. But I am wrestling with whether or not to even max out the $18k. Not sure I want to have that much retirement income to have to pay taxes on in the future. But if that is the smart play, then I might.
Thinking about the benfits of rental property as I remember the best deduction years was when I was building houses and able to write off taxes, mileage, cell phones, tools, etc. Thinking I need something like that to get the most benefit.
“Wailord”
1979 17’ Montauk
90 Johnson
Wilderness Ride 115
While tax-deferred accounts may be safe during the current admin, I’m leery about them…I do the absolute minimum where my company still matches in 401k, but do have a roth and rollover, too.
Something about the gov’t still thinking it is their money if you haven’t paid taxes…I’m one to get myself “out the system” as much as possible. Math has a funny way of forcing its reality on the fantasies of us humans.
I am retired, always smoked the 401k and catchup contributions. A bird in hand is worth two in the bush. We never know what the future will bring or how employment situations may change. I have never heard of anyone that complained of having too much money in a retirement account. Bear in mind, your personal exemption increases at age 65 for income taxes. You also get a discount on property taxes. Overall, your tax situation should be much lower than when you were working. If you have hundreds of thousands, or even a million or two, in a retirement account that you have to pay taxes on as you withdraw what a wonderful problem to have. Quit looking for excuses not to fully fund your future. Might be a pro tip.
