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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.

TaxHack Points:

  • 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:

1. A scary take: 3 biggest mistakes Millennials make

2. Save, save, save: the value of investing into your 401(k) plan 

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.

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