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<<Forget it. This has grown tiresome.

Also, don't forget that if he puts his money into a Roth, like we are talking about, there is NO tax deduction. Thus, it's all post tax money, and your witholding trick only serves to increase the amount of cash he'll have to cough up come April 15.>>

No. No. No.

Ed's point about taxable income is exactly right. There is no trick. Let's take the points in order, though:

1) Roth and traditional IRA's are very different things with very different end results. Let's leave that out of the argument.

2) One problem with traditional IRA's is that the contribution limits are not as high as 401(k) plans.

3) Let's put the witholding "trick" (sic) to bed. I'll use a numerical example. I'm going to simplify and use just income and 401(k)/IRA contributions. Everything else on the paycheck will be a wash (no net effect).

A) 401(k) Plan
Income: $10,000
Contribution Rate: 10%
Amount in 401(k) for year: $1,000
Tax Rate: 15%
A.G.Income: $9,000
Tax Paid: %1,350

B) Traditional IRA
Income: $10,000
Contribution to IRA: $1,000
Tax Rate: 15%
A.G.Income: $10,000 - $1,000 = $9,000
Tax Paid: %1,350

The only questions that remain are:
How much do you give Uncle Sam per check?
How big a refund (NOT HOW MUCH YOU OWE) come April 15?

Ed's point (I believe) is simply this. If you set your witholding at 15% for plan "A" at the beginning of the year, you will neither owe taxes, nor receive a refund.

To have the same effect (no taxes, no refund) with plan "B" you simply need to adjust your witholding to 13.5%.

As I said above, the main problem is the limitation on traditional IRA contributions. Alternatively there is the Roth IRA which does not have the same tax effects on income, but does allow larger amounts of saving.

I hope this helps.
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