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Investing/Strategies / Retirement Investing
|Subject: Re: Retirement planning and other considerations||Date: 8/26/2000 9:24 PM|
|Author: Mark0Young||Number: 24378 of 76420|
With the exception of a 401(k) being tax-deferred, does it help in any other way with my taxes, or do you simply mean that portion of my income invested in a 401(k) isn't immediately taxed?
No, just that a 401(k) is (usually) funded with pre-tax money. So if you contribute $1200/yr to your 401(k), box 1 of your W-2 will be $1200 smaller than the wages you earned. During the year your withholding would likewise be less. (FICA and disability insurance are computed based on the total salary, but federal income tax and probably state income tax are computed after that $1200/yr is subtracted off.)
When you file your Year 2000 taxes next year, since box 1 of your W-2 had already been adjusted down for the 401(k) contributions, you would do nothing special for the 401(k) contributions.
The money in the 401(k) can then grow "tax deferred".
Only when you start drawing money out of the 401(k) would you pay taxes on that money. At that time you would have to pay what then will be your ordinary income tax rates.
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