For those brave souls reading this, bless you. Chances are, if you’ve already looked into 401(k)’s you’re likely to never want to hear about them again. So I dare not repeat much here. I will summarize though, the main points — and what I think is critical knowledge — regarding this oft-understood Tax Hack. For added measure, I’ve linked to some of the top articles on 401(k)’s that are trending now.
Contributions are deductible meaning that you’re not taxed on any amount that you put into your 401(k)
Managing to the max contribution
In 2016, the max contribution for those under 50 is $18K
All that said, income from your 401(k) is taxed when received in the future (“deferred”) and penalties apply for early withdrawal
- The above points may be reasons to consider contributing instead to an IRA account, which uses taxed money, but is non-taxable when you cash out
Maximizing your contribution reduces your taxable income, lowering your overall tax rate on the rest of your income
Tax Hack Additional Recommended Reading:
3. Another take: how we Millenials are savvy 401(k)-ers
For more local, customized, and fair Tax Know on this subject, book a TaxHack session now.