I have heard that investing some of your paycheck into a 401K will actually make you're take-home pay more because of the tax break. Lets say i make 2000 a paycheck minus taxes... so about 1400 a paycheck (assuming taxes are 30%)...if i invest 6% of my 2000 before taxes into a 401K, will that percentage of a tax break actually put more money in my paycheck after taxes and the 401K are taken out rather than just getting taxed on the whole 30%?
2007-07-18 07:17:32 · 5 answers · asked by rushfreak01 2 in Business & Finance ➔ Taxes ➔ United States
The tax break referred to means that the money you put into the 401k will not be taxed. If you make $2,000 less $600 tax you have $1,400. If you invested 6% of the $2000 in a 401k ($120) you taxable pay would be $2000-$120=$1880. Using your 30% tax rate you would pay tax of only $564. Your take home pay would be $1880-$564=$1316. Your savings in the 401k ($120) plus your take home pay ($1316) totals $1436 which is $36 more than you would have had without saving the $120 in your 401k.
2007-07-18 07:27:41 · answer #1 · answered by skipper 7 · 1⤊ 0⤋
No, a deduction for a 401K will not make your paycheck more than it was without the deduction. But that portion of your pay won't be taxed, so the amount your net paycheck goes down will be less than the 401K contribution..
2007-07-18 07:36:08 · answer #2 · answered by Judy 7 · 1⤊ 0⤋
Your net pay will never be more - but - if you have say $300 taken out for a 401k then you will lose only - maybe $220 from your net pay. And - if the employer has any matching then it could be that you are building your saving by maybe as much as $500 as an example and it is only costing you $220 out of net. Only thing to be careful of is how long it takes for you to be vested in what the employer has contributed.
2007-07-18 07:22:41 · answer #3 · answered by Moondog 7 · 0⤊ 0⤋
Then the IRS may well be hounding your ***. because of the fact you may in ordinary terms make a contribution $sixteen,550 into your 401k consistent with 3 hundred and sixty 5 days, with exceptions made in case you're over 50, you may make a contribution one greater $5,500. in addition to, this 401k money which you legitimately make investments isn't tax loose. it is tax deferred. you would be paying the taxes on that, quicker or later. particular, you may deduct many stuff as agencies expenditures. and would the IRS ever audit you, you will would desire to guard those deductions. in case you're very liberal with your deductions, good success with that because of the fact you'll want it. and those rich people who you seem to have faith pay no taxes, in fact pay the main. in accordance to IRS archives, the precise a million% of earnings earners pay 40% of this u . s . a .'s earnings taxes.
2016-12-14 12:42:02 · answer #4 · answered by ? 4 · 0⤊ 0⤋
no, your per-paycheck take-home pay won't go up, but the money you invest is pre-tax. so if you invest $1 pre-tax, your 401k goes up $1, if you take $1, pay tax and invest the rest, you are only investing 70 cents.
That's the big tax advantage.
2007-07-18 07:21:41 · answer #5 · answered by Anonymous · 0⤊ 0⤋