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For OP Moooohead,


As AJ stated the entire $39K comes off the total income before any deductions or limits.
This is a great way to save for retirement as I did the same for many years. Just a word of advise on taxes both now and in the future.

The 401K money comes right off the top and is not taxed now. It is taxed years later when you are withdrawing money. Do either or both of your 401K plans offer Roth 401K contributions? Consider where you think taxes will be in the future. When you retire and start to withdraw the 401K you will be taxed at ordinary income tax rates. Roth 401K withdrawals are tax free, based on current laws.
Your individual situation will dictate which approach is better for you. You Salaries, Expenses, Other income and investments will all play a part in this ever changing game of LIFE.

If you did a split and put some money in 401K and some in Roth 401K you would be saving the same 39K for this year. Just the taxes change.

Without a crystal ball we don't know what the future situation will be. In 2020 tax rates are relatively low based on history. By 2025 the tax breaks go away, could be earlier. Depending on the tax brackets you fall into you need to decide if you want to defer taxes on that 39K or pay the tax now and have it grow tax free. I am betting on tax rates rising over the next 10 years or more. This is independent of who wins this election.

Just some food for thought. I can tell you that the tax breaks I got from 401K contributions were great. I did split some into Roth 401K contributions. I should have put more into Roth and a bit less into 401K. I do not want anyone to adjust what they can save toward retirement. The more the better. Just keep an eye on what you want to protect from taxes. In the 1st 10 years I put 100% in 401K. In later years I changed the percent between 401K and Roth 401K. My final split over life is 75% 401 and 25% Roth 401. The last 2 years was 100% Roth.
Good Luck in planning.
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