I don't have a lot of taxes taken out of my check. Should I claim less deductions on W-4, or add to my 401k?

Question

Which way would I be better off at the end of the year? Claiming less deductions will result in more taxes taken out, but increasing my 401k would result in my taxable income going down, so I'm not sure which way to go.

Answer 1

Ignore the IDIOT "jasonallen347" above me. Classic "Tax Kook" who will get you in serious trouble if you pay any attention to the dung he's shoveling.

You are confusing 2 things. Withholdings and 401(k) contributions. You have little control over your withholdings if the proper amount is being withheld from your pay, i.e. you are receiving a small refund at the end of the year. If you're pulling a large one, you should adjust the number of withholding exemptions up a bit to come out closer to even at the end of the year.

Making 401(k) contributions does lower your taxable income and therefore the tax due, but the idea is to sock away tax-deferred funds for your retirement. The incentive to do that is the tax-deferred status of the money deposited into the account. Additionally, most employers also provide an additional amount or matching payment into the account. This is literally free money to you once you are fully vested in the plan so you should ALWAYS put enough in your 401(k) to at least get the full employer match.

Answer 2

When you have deductions taken out, and then receive a refund at the end of the year, basically all you're doing is giving the government an interest-free loan.

Answer 3

If you can afford to put additional money into your 401K, that would be good, since it will make your retirement more comfortable.

Answer 4

first, educate yourself to see if you should be classified as a "taxpayer" or a "non-taxpayer". this can easily be done to see if you are actually liable for any federal graduated income taxes as specified in the USC Title 26. Read it. pay close attention to the definitions.

check out all the education pages, as easy as reading, on

http://www.originalintent.org
http://www.nontaxpayer.org

Also listen to some of the radio feeds from

http://www.americanradioshow.us/archive.html

to learn more. do a little reseach and find out if you are even liable for the graduated income tax, as not everyone who works is liable. also check out Aaron Russo's scathing documentary on google video titled, Freedom to Fascism