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$37,000 401(K) Tax Saving Strategy

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How to Reduce Your Taxable Income by $37,000 Without Going Back to School

Pros of Maxing Out Your 401(k)

Did you know that over 150,000 taxpayers are 401(k) millionaires?  Powerful stuff.  What could you save with a 401(k) tax deferral strategy in 2018?

Let’s say you are married and you and your spouse earn $100,000.  You and your spouse can each contribute $18,500 to your 401(k) tax-free.  What will that do?  Well, that’s $37,000 of your total income that won’t be taxed, reducing your taxable income from $100,000 to $63,000.  All else being equal, tax on $100,000 is $22,000.  Tax on $63,000 is $12,000.  That’s a $10,000 tax savings! 

Cons of Maxing Out Your 401(k)

Nothing causes people to get into serious tax trouble like unplanned 401(k) withdrawals when an economic hardship presents itself.  Money placed in a 401(k) is “locked-up” and can only be accessed in limited circumstances, so you have to make sure you have enough set aside for an emergency before maxing out your 401(k) starts to make sense.

Category: Tax

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