401k Tax Deduction

Frequently Asked Questions

1. QUESTION:
   Can Contribute to a 401k and take the 401k tax deduction and the full IRA deduction?
   Let’s say I make K and I’m over 50. I deduct k for my 401k and I contribute k to my traditional IRA. Do i get to deduct the full k?

   • ANSWER:
     You are not charged taxes on the money put in the 401K, so you cannot deduct it.

     Assuming you put taxed dollars in your IRA, you may get a deduction there.

     Grandpa

2. QUESTION:
   End the 401k tax deduction and allow the Child Tax Credit to expire?
   I can’t afford Obama and the Democrats

   http://www.workforce.com/section/00/article/25/83/58.php

   http://www.humanevents.com/article.php?id=28911

   Rod, I said Obama and the Democrats. Together they will reek havoc.

   • ANSWER:
     Wow! That would stop me from contributing to my 401K. I don’t have minor children but allowing the child tax credit to expire would definitely hurt a lot of people. Nothing surprises me with the Dems!

3. QUESTION:
   Employer tax deduction on a 401k contribution?
   What percent tax deduction does an employer get for contributing money to an employees 401k? Thanks.
   Is there a percent range that most companies fall into? Or a graph or table that I can look at to try and see what deduction the employer would get?

   • ANSWER:
     If your tax bracket is 15% and you put ,000 in as a match for your employee, you would save 0 in taxes.

     Helen, EA in PA

4. QUESTION:
   AGI Income Limit on 401K Tax Deduction?
   When I did my taxes last year, it looked like I couldn’t get a tax benefit from my 401K contributions because my income was too high. Now, I’m thinking that it doesn’t make any sense to contribute if that’s the case. Is it true that if your AGI is greater than 50K you can’t take a tax deduction from your 401K?

   • ANSWER:
     Your 401k contributions come directly off your wages so your W2 will be smaller. Plus it is always good to contribute so you have 1 – money when you retire and 2- if your employer matches a part of your contribution it is free money

5. QUESTION:
   What is the total combined tax deduction for 401k and IRA together for joint filing – can I mazmize both ?
   Just wanted to know if I can maximize bith 401K plan of 14,000 for me and also contribute to IRA of 4000 each for myself and my wife ? Is this possible. My salary is around 75,000.

   • ANSWER:
     Yes, you can contribute the max to both.

6. QUESTION:
   IRA 401K Tax deduction help.?
   My Company suspended our 401K match. Can I put 00 (the max) in an IRA and invest ,500 in my 401K? ,500 – 00 I put in the IRA and still get the 16500 tax deduction? Or can I only use one of these plans/year?

   Thanks for any info.

   • ANSWER:

7. QUESTION:
   In a roth 401k, the deduction is based on after tax dollars, is that also after 401k and other pre tax ded…
   Froma previous post, I saw that it is calculated based off of after tax, and after regular 401k deductions, so my example was 3% deduction for each 401k. 1000 gross pay, -30 for regular 401k-250 for taxes = 720 *3% roth 401k = .60 w/h for roth..now , if they have health insurance taken out pre tax, I assum that also subtracts before doing the decution calc.. is that correct? Lastly.. if the company is matching dollar for dollar up to 3% of total contributions, and then .50 on the dollar after that.. woould all of that calc off of the gross no matter what, because all employer contr. have to be pre tax?

   • ANSWER:
     Before your employer calculates your tax witholdings on your paycheck they subtract all pre-tax items from the gross amount, including things like:

     + 401(k) contributions (but not Roth 401(k)s)
     + Premiums on health insurance or HMO
     + Contributions to medical or child-care flexible savings accounts
     + Group life insurance (up to ,000 worth)
     + Parking
     + Premiums on disability insurance (if you chose to pay pre-tax)

     The other factor is how many exemptions you declared. Note that if you have sufficient deductions like mortgage interest, real estate taxes, etc. you can convert those to exemptions. For example I have a wife and 2 kids but I declare 11 federal exemptions and come out about even on federal taxes each year.

     There are penalties for being underwithheld so do not bump up your exemptions withhout justifiable reasons. But being overwithheld is just giving the government an interest-free loan.

     Good luck to you.

     p.s. The matching contribution is always pre-tax and will be taxed when withdrawn, regardless of how you use regular 401(k) and Roth 401(k).

8. QUESTION:
   If I don’t have a 401k at work,what are my best tax deduction options?

   • ANSWER:
     Up to K a year can be contributed to an IRA without deductions. Isn’t it sad how low that number is? I mean, who could retire on ,000 a year, even with compounded interest. You pay tax on the income, but then get taxed on your interest made off of the same income when you try to save it. What a racket.

9. QUESTION:
   When you lose money in your 401K are you able to take a tax deduction on this loss?
   Where could I find further info on this?

   • ANSWER:

10. QUESTION:
    how to enter Individual 401k (“Solo” / Self-Employed 401k) deduction into Turbo Tax?
    The instructions on their website are wrong… Has anyone faced this?

    • ANSWER:
      The deduction goes on line 28. See IRS pub 560.

11. QUESTION:
    20% Tax Deduction from my 401K?
    I had the check made out to me so they automatically deducted the 20% taxes, but I rolled it into another 401K within the 60 days plus I also put in the 20% that was withheld for taxes. I understand that there is a form that I can send in with my 2009 tax return to get a refund of the 20% that was sent to the IRS. Does anyone know the number of that IRS form?

    • ANSWER:
      You must deposit the full amount of your distribution in your new IRA, making up the withheld 20% out of other resources. Which is what you have done. When you file your tax return for the year, you can then include a request for refund of the lump-sum withholding.

12. QUESTION:
    Will increasing 401k deduction now decrease gap between taxes I’ll pay thru paycheck and what I’ll owe in Apr?
    Calculations I have done when I increase my 401k deduction lowers total tax liability but doesnt seem to change the difference between the total fed tax withholding I will have at the end of the year and what I am estimating my taxes to be. Meaning I estimate difference between paycheck withholdings for 2006 and what I will owe on tax return to be 00. When I recalculate after increasing 401k by 3% or 4% difference is still 00. Total withholding and what I will owe both are reduced but difference is still 00?

    • ANSWER:
      If you make ,000 per year, and contribute 15% of your salary to your 401k, and have 2 witholdings, you will owe about 0.

13. QUESTION:
    How many americans earning less than 0,000 a year have a 401K?
    You think Obama is not going to raise your taxes? Democrats in congress are looking to take away your 401K tax deduction already. For those of you in Rio Linda…8*) That mean you will pay more income tax. That is raising your taxes.

    • ANSWER:
      UMMMMM YEAH EVERYONE IN MY FAMILY IS BELOW 250K A YEAR AND WE ALL HAVE 401K SO THAT IS APROX. 150 PPL LOL THATS ON BOTH MOTHER AND FATHERS SIDE ( AUNTS, UNCLES, COUSINS AND INLAWS) SO THATS 150 PEOPLE OBAMA IS GONNA SCREW OVER SO VERY SAD…..

14. QUESTION:
    tax deduction for traditional IRA with Roth 401k contribution only?
    Recently I received my W-2 (2007) and I found that box 13 has ‘sponsored ret. plan’ unchecked. It is strange because my company provides both traditional 401k and Roth 401k, but I contributed only to Roth 401k for year 2007.

    My questions are:
    1) Can I contribute to traditional IRA (2007) and still receive tax deduction, because the ‘employer ret plan’ is unchecked? My income is over the deduction limit if the ‘employer ret plan’ is checked.
    2) Or, my employer made a mistake and should have checked the “employer ret plan” box?

    Thanks,
    Please allow me rephrase my situation.

    I contribute to only Roth 401k for 2007, not a penny in Traditional 401k. My W-2 has “employee sponsored retire plan” unchecked. Can I get tax deduction for my contribution to a separate traditional IRA? Or my W-2 is wrong?

    • ANSWER:
      Something is wrong.

      There is no such thing as a Roth 401k.

15. QUESTION:
    Tax Deductions: If I have a 401k at work, can I still open a Roth IRA and claim the deposits as deductions?
    I have a few bucks in the bank and if I can invest it and claim a deduction that would be great, if I can, is there a limit if I make 0,000?
    After reading more, it looks like a Roth IRA isnt tax deductible, but is a standard IRA?

    • ANSWER:
      While a Roth isn’t tax deductible, it grows tax free, which, to me, is a much better deal.

16. QUESTION:
    Can changing asset allocations in 401K result in tax credit/deduction?
    I changed some of my asset allocations of my 401K this last year, which resulted in my selling of some stocks and buying others. Because of the situation of the economy, I took some losses when I sold the stocks as I sold them for less then what I bought them for in the first place. My question is, is the amount I lost tax deductible? If so, how do you figure out how much it is that I lost exactly?

    Thanks for your help.
    Thanks – You were all very helpful in answering my question.

    • ANSWER:
      No. Transactions inside your 401k have no tax consequences. Only money going in or out has a bearing on your taxes.

17. QUESTION:
    Can I sell Mutual Funds and buy into the IRA and get a tax deduction?
    I recently switched jobs to a company that doesn’t have a 401k program. So as to get a tax deduction, I would like to invest the max amount in an IRA. Can I sell Mutual Funds, which have been performing poorly, and buy into the IRA and get a tax deduction for the IRA and the capital loss?

    • ANSWER:
      Dear S: If your old company had a 401K you maybe stuck with the rules of being covered by a plan although it was not for the entire year.

      See IRS Pub 451 and if you earn under K you will get the full deduction. In this case you get to keep your pie and eat it too. Capital loss and IRA deduction.

      Another plus, the funds do not have to be committed to the IRA until Apr 18 2011. Great strategy and you can wait until tax time to make your decision.

      Under age 50 K max contribution.

      This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent

18. QUESTION:
    What is the difference between pre-tax basic and pre-tax supplemental in my 401k plan?
    there are two choices when selecting the payroll deduction on my companies 401k – pre-tax basic and pre-tax supplemental. When selecting a percentage of my pay that I want to contribute, which one do I choose?

    • ANSWER:
      I’m guessing that you are actually talking about 2 different types of plans. The Basic would be the 401k and the Supplemental would be a SERP (Supplemental Executive Retirement Plan). The SERP is a non-qualified plan that may or may not be invested in the same manner as the 401(k). The accounts are NOT combined. The 401k is covered under ERISA law and is highly protected. The SERP does not have same protections. In fact, I think there has to be a risk of loss in the SERP for it to be valid.

      Essentially the 401k money is deferred and put into a trust. The compensation shows up on the w-2 when it’s actually earned for social security purposes but it’s not taxable for IRS purposes. When it comes time to pay it out you receive the cash and a 1099-R. That’s when it becomes taxable for IRS purposes. The money is real and the balance is tangible. The SERP, however, is typically a phantom plan. You defer your pay but the money does not go into an account for your benefit. The “comp” does not show up on your w-2 and is not taxable for IRS purposes. It’s as if you never earned it. The deferred comp money remains with the company. They may choose to invest it and let you direct it but it remains under their ownership. When it comes time for the payment, the money is paid through payroll and shows up on your w-2. That’s when it’s taxable for IRS and earned for social security.

      Generally how it works is people who are highly paid, max out their 401k contributions and then are stuck. Someone makes 225k can only put ,500 which equates to 6.89% of their pay. Hard to achieve an equivicable retirement income if you’re limited to that 15.5k. The SERP allows them to put more away…But, as I said the assets belong to the company so there is some risk here if the company goes under. Those in the SERP stand in line with all the other creditors.

      So, if you know you’re going to hit the 15.5k figure for the year then put a percentage into the Supplemental Plan. But if you aren’t going to hit that number anyway don’t bother.

19. QUESTION:
    If you do not invest in your company’s 401k…can you invest in a traditional IRA and get a tax deduction?

    • ANSWER:
      You can always put money into a Traditional IRA to get tax deductions, up to 00. Any contributions made between 1/1/08 and 4/15/09 and be taken as a deduction on your 2008 tax return.

20. QUESTION:
    If I contribute to a 401K now, can I use it as a tax deduction on the 2009 taxes?

    • ANSWER:
      Contributions to a 401k are done on a calender year basis only and are deducted from your salary/paychecks. If you are eligible for a Traditional IRA contribution, then you have until 15APR2010 to make a 2009 tax year deduction. See IRS publication 590 for the details.

21. QUESTION:
    401k after tax deductions same as Roth IRA?
    I have a traditional 401k through my job. I started taking out pretax money including my after tax money in my 401k. Is taking out pretax dollars from your 401K the same as a ROTH IRA? I live in Philadelphia, if that helps

    • ANSWER:
      It sounds like you’re talking about taking distributions from your retirement accounts–taking money out after you’ve reached retirement age. 401K distributions (and traditional IRA distributions) are taxable income, since you didn’t pay taxes on the money when you put it in. Roth IRA distributions are not taxable, since you already paid tax on that money before you put it in.

      If you’re talking about putting money into your accounts, remember that the 401K is pre-tax and the Roth is after tax. (Separate yearly limits apply to each.) Don’t put the wrong kind of money in either account, it will cause tax headaches later.

22. QUESTION:
    What are your thoughts on the proposal to change 401k tax deductions and to transfer funds to ?
    government accounts earning only up to 3% annually, and also giving 0 annually to people who did not bother to save?

    “Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals provide a much larger âcarrot to wealthy families than to middle-class families and none whatsoever for families too poor to owe taxes.

    GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not earn a 3% real return in perpetuity.In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive 0 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than 0, the government would deposit whatever amount it would take to equal the minimum 0 for all participants.”

    http://www.carolinajournal.com/exclusives/dems-target-private-retirement-accounts.html

    “House Democrats Contemplate Abolishing 401(k) Tax Breaks
    Powerful House Democrats are eyeing proposals to overhaul the nation’s trillion 401(k) system, including the elimination of most of the billion in annual tax breaks that 401(k) investors receive. ”

    http://www.workforce.com/section/00/article/25/83/58.php

    • ANSWER:
      This is nothig more than a plan to add revenue to the government so that they can spend more, just like they did with Social Security.

      If I had all the money I’ve paid into SS in a 401k right now, even with the recent stock market troubles, I’d be a very happy man.

      3% is crap and people need to take an interest in their investments and not just let the big brother government do it for them. Also, the businesses need capital inventsment from 401ks. Also, that money that you invest provides funding for a lot of start up companies as well.

23. QUESTION:
    What are your thoughts on changes to the 401k tax deductions, giving the poor 0 and putting our $$ into Gov?
    safe bonds earning a mere “potential 3%”?

    “Under Ghilarducci’s plan, all workers would receive a 0 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation. ”

    “I want to stop the federal subsidy of 401(k)s,” Ghilarducci said in an interview. “401(k)s can continue to exist, but they won’t have the benefit of the subsidy of the tax break.”

    “I want to spend our nation’s dollar for retirement security better. Everybody would now be covered” if the plan were adopted, Ghilarducci said.

    House Democrats Contemplate Abolishing 401(k) Tax Breaks
    Powerful House Democrats are eyeing proposals to overhaul the nation’s trillion 401(k) system, including the elimination of most of the billion in annual tax breaks that 401(k) investors receive.

    http://www.workforce.com/section/00/article/25/83/58.php

    • ANSWER:
      He take take his 0 and shove it where the sun don’t shine. 3% is for suckers who want to lose at least 0.5% a year to inflation.

      This is merely a scheme to steal taxpayer’s money to fund the treasury. The Dems can pound sand.

24. QUESTION:
    What are your thoughts on the Dem’s trying to take away 401k tax deductions and give 0 annually to poor?

    http://www.carolinajournal.com/exclusives/dems-target-private-retirement-accounts.html

    “Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals provide a much larger âcarrot to wealthy families than to middle-class families and none whatsoever for families too poor to owe taxes.

    GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not earn a 3% real return in perpetuity.In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive 0 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than 0, the government would deposit whatever amount it would take to equal the minimum 0 for all participants.”

    Excuse me??????? Yammering on about money, sorry but it is my money and I earned every penny of it, why should some bottom feeder who didn’t work or save be entitled to it?
    Here is a better link, with the Dem’s names:

    “Powerful House Democrats are eyeing proposals to overhaul the nation’s trillion 401(k) system, including the elimination of most of the billion in annual tax breaks that 401(k) investors receive.

    House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute. ”

    http://www.workforce.com/section/00/article/25/83/58.php

    • ANSWER:
      It is much worse than that…
      Read these articles one has audio.

      http://www.workforce.com/section/00/article/25/83/58.php

      http://whatthecrap.wordpress.com/2008/10/28/dr-teresa-ghilarducci-on-abolishing-401k-plans-audio/

25. QUESTION:
    Can i open 401K and contribute to 2006 tax year?
    Can i open 401K with my employer now before April 17, 2007 and contribute to 2006 tax year and get tax deductions?

    • ANSWER:
      No. You can only open a 401(k) when you first become eligible to participate or during your employer’s open enrollment period. A 401(k) opened now and any deferrals deposited to it would be for the 2007 tax year.

      And you don’t make deposits to one, your employer deducts your investment from your pay and deposits it to the account on your behalf.

      You CAN open an IRA and make a deposit by April 17, 2007 for tax year 2006. Whether or not you would get a deduction for the deposit would depend upon your income since you appear to be covered by a qualified pension plan through your work, even if you are not currently participating in it.

26. QUESTION:
    Can 401k loss be tax deductible?
    When the economy took a nosedive last year, my 401K also took a huge beating. I know that money invested in 401k is pretax dollars and they are automatically sold off at end of year. Can this loss be an itemized tax deduction? Since I didn’t get any form from the 401k company, I assume this is probably not possible. I just want to confirm. Thanks!

    • ANSWER:

27. QUESTION:
    which lowers your tax amount the most, mortgage interest & realestate tax deductions or 401k contributions?

    • ANSWER:
      Are you trying to decide between using money for one versus the other? That’s what I seem to read in your question.

      Both types of vehicles are available for use at the same time–mortage interest and real estate taxes as itemized deductions (to be added to other itemized deductions, the total of which is then compared with your available standard deduction), and 401(k) contributions as a reduction of your earnings. But if you’re trying to assess which might be of more benefit as alternatives, you can be assured of 401(k) contributions giving you a tax benefit, because your earnings are reduced up front (and consequently your tax liability). You can only be assured of itemized deductions in general giving you a tax benefit if their total exceeds the available standard deduction.

28. QUESTION:
    Will it help with my tax deductions if I start a 401K now?

    • ANSWER:
      Definitely – unless you’ve already put money into an IRA this year and you’re a high income earner.

      Just to add to the definition of “high earner”. If you have a 401k and contribute to an IRA, your IRA deduction will be phased out if your income is over 55,000 (single), 166,000 (MFJ), 89,000 (HOH) until you are not able to deduct your IRA at all for income levels about 10,000 above that.

29. QUESTION:
    Should I take a large 401k deduction to lower taxes or pay what I owe with a credit card(vs living off it)?

    • ANSWER:
      Better whip out the credit card!

      You can’t take any more 401(k) deductions for 2006. Unlike an IRA, there is no “grace period” for 401(k) deductions that would allow you to add anything to it after the end of the tax year. And you can’t just write a check and deposit it to your 401(k) plan. A 401(k) is a salary reduction plan, not a depository account.

      You MIGHT be able to open an IRA and make a deductible contribution to it. You have until April 17, 2007 to do that. However since you are covered by an employer sponsored retirement plan there are income limits that may bar the deductiblity of any IRA contributions. For a single taxpayer, the deduction starts to fade when your AGI hits ,000 and is gone when it hits ,000.

30. QUESTION:
    Should I continue to contribute to my 401K since my employer stopped their matching funds?
    My employer just stopped their matching on our 401K plan, (This is a standard 401K not a Roth 401K).
    I was reading Suzie Orman’s column the other day and she suggested that if this is the case that a person should just put their money into a ROTH IRA instead. I realize I will lose my pre-tax deduction from my 401K contributions if I do this.
    Any thoughts on Suzies advice or other suppestions?

    • ANSWER:
      Here are the pros and cons of each retirement vehicle:

      401k pros- Contributions are tax deferred; Loans may be allowed by plan. That’s pretty much it if they aren’t matching you.

      401k cons- Money may be locked in until retirement depending on plan’s rules; investment options are limited to plan’s investment line up.

      Roth Ira pros- More investment options; earnings are tax deferred as long as the money has been in the acct for 5 years and you are over 59.5 years old.

      Roth Ira cons- Contributions are after tax; no loans are allowed.

      So, it’s really up to you to decide which is best for your situation.

31. QUESTION:
    Individual income tax – insurance deduction question?
    Do life insurance premium, medical insurance premium and 401k plan deduction the same as medical expense?

    • ANSWER:
      Medical insurance premium can be deducted as a medical expense if you itemize, and if your medical expenses are over 7.5% of your income

      Life insurance premiums aren’t deductible.

      Your 401K plan deduction is already subtracted from your taxable income on your W-2, so no, you don’t deduct it again on your return, it’s already out.

32. QUESTION:
    Can we use our early 401k withdrawal as a Medical deduction on our taxes to avoid the 10% penalty?

    My husband and I closed our 401K plans to have IVF treatments done and to pay other medical bills. We both paid the 10% federal tax but were wondering if there was a way we could use the medical deduction portion to avoid the 10% early withdrawal fee?
    The first 401k was actually rolled into a trad ira before i closed it whereas my husband was an actual 401K account. So do the same penalty fees apply?

    • ANSWER:
      VB is right…IRA or 401k it doesn’t matter…both are qualified plans for this purpose. And it is subject to that 7.5% AGI limit. Basically works out that whatever amount that you could use as an itemized deduction you can also avoid paying the 10% penalty on. Given the possible expense of IVF it’s very possible it’s a substantial amount.

33. QUESTION:
    Do Pretax deductions for federal income tax also apply to medicare and social security?
    Does taxable medicare and taxable social security income decrease for pre tax deductions (such as 401k, flex spending) in the same way the federal taxable income decreases?

    • ANSWER:
      Some of them do, and some of them don’t.

34. QUESTION:
    401k Tax- What goes on your tax returns…?
    I have a 401k with my employer. I am doing my taxes. I have a roth but the percentage that my boss matches goes towards a traditional 401k amount. I am wondering if I include this amount on my taxes deductions. I thought I could put it on since it goes into my account but then I thought well I’m not the one putting it in the account, it is my employer. HELP.
    Thanks everyone, its because when I add it in it gives me more money back but then I dont want to get in trouble if im not suppose to. Im doing my own taxes this year…

    • ANSWER:

35. QUESTION:
    is a 401k withdrawal considered earned income in terms of claiming a section 179 deduction?
    Here are the details; I am over 55 under 591/2 and not employed as of this year; I have started a small business that has potential 179 deductions. If I take a 401 k withdrawal can I then take the 179 deduction to offset the income tax that would be do on the 401k withdrawal.

    Thanks for your help

    • ANSWER:
      No distributions from a retirement plan is unearned income that is entered on the 1040 tax form page 1 line 16a and 16b.
      I have enclosed the below information if you want to use it in the future for your business operation.
      Go to the IRS gov website and use the search box for the below referenced material
      *Starting A Business
      *Operating A Business
      *Closing A Business
      *Publication 4591, Small Business Federal Tax Responsibilities (PDF 470.1K)

      http://www.irs.gov/

      http://www.irs.gov/publications/p334/index.html

      http://www.irs.gov/businesses/small/index.html

      Hope that you find the above enclosed information useful and good luck

36. QUESTION:
    I rolled my 401K into my IRA. Do I still claim it as an IRA deduction on my tax return?

    • ANSWER:

37. QUESTION:
    Tax 2006 – Traditional IRA vs. Roth IRA vs. 401k?
    My wife and I will file married jointly for 2006 tax, and I have my 401k deduction from w2 already, my wife will put 00 to her IRA account too. My question is, can I still open a Roth IRA and put 00 in it for myself? We both are 33 yrs old, total AGI is around ,000.

    • ANSWER:
      You can have one ROTH IRA per person
      So yes, you and your wife can each have one, and it’s a GREAT idea.

38. QUESTION:
    W-4, 401k 403b contributions: Tax Questions?
    I have some questions that hopefully somebody can shed some light.

    1. On my W-4, do I use my wage basis as my salary minus my 401k / 403b contributions? For example, if I make k annually and contributed k to my 401k / 403b, do I base my wage as k?

    2. Lets say my spouse makes k annually. On his W-4, he took an additional deduction of 0 after doing the calculations on the back (2 Wage Earner Household). Do I also add a 0 deduction on my W-4?

    As a side note, it seems that with both of us working, we’re only bringing in an additional 0 or so a month compared to him just working by himself. It just doesn’t make sense to me. Just because I’m working now, his paycheck’s tax deductions doubled. I don’t think an extra 0 a month is worth the stress that I go thru.

    Can someone help make some sense with the tax numbers for me?

    When our household was only making a gross of k annually, his taxes liabilities were lower. I expected it to go up when I started working, but doubling the amount of tax liabilities is just crazy. I mean if I bring in an extra k gross, our combined salary should be k gross annually. But why is it that our combined net wages per month are only about 0 more than before? Are there some other ways that we can reduce our tax liability?

    Thanks!

    • ANSWER:
      You don’t put your dollar salary on your W-4, so I’m not sure what you are asking in 1. or 2. On the worksheets where income is asked for, yes use the amount after deducting the 401K contribution.

      If you are grossing , 000, then the extra after taxes is a lot more than 0 per month. Your extra federal income tax on a joint return due to your income would be around 25% or probably a little less than that. Depending on where you live, state and local income taxes could add up to 10% (most places, less) to that. That would still leave around .550, or 62 a month, extra after tax. Sounds like maybe he is having a lot more deducted than he needs to now if so, you’ll get that back as a refund so you can’t count that. But only you and your husband can decide whether the extra money from you working is worth it.

39. QUESTION:
    Tax deduction fund???
    Are there any fund(mutual or whatever) which can be beneficiated by tax deduction when you file your tax-return? like 401K?
    I know that 401K is a kind of Tax-deferred one that you need to pay your income tax when you receive it after 65 years-old. But for this, the goverment gives you a benefit when you file your tax-return.
    I mean this kind of benefit that you can have in your tax-return.
    I am korean and not good at speaking English, hope that any answerer can understand my point.
    Please recommend me any fund and also any company which can provide this service, Thanks.

    • ANSWER:
      An IRA (Individual Retirement Account) but there are many rules, you need to see a tax specialist to make sure.

40. QUESTION:
    cAN YOU DEDUCT YOUR 401k CONTRIBUTIONS ON YOUR FED TAX FORM? iS IS THE SAME AS AN ira DEDUCTION?

    • ANSWER:
      lol…no

41. QUESTION:
    401K loan repayment and tax deductions?
    i am sorry if this is confusing I will use unreal numbers but with the same outcome my husband quit his job he had 100,000 in 401k he withdrew it he had a loan balance of 15,000 the company deducted 25% for taxes and 10% for penalty and 15,000 for loan repay the 100,000 did not include the 15,000 loan thanks for your help

    • ANSWER:

42. QUESTION:
    Does a 401(k) plan have income limitations(phase-out) for tax deduction purposes?
    My wife and I make 0k a year together and next month she will be eligible to participate in her company’s 401k plan with a 6% match. If she contributed the maximum for 2009 (500), would all of the money be automatically deducted from her gross income, thus acting as a deduction(and lower us to the 15% tax bracket)? or is there more to it? Thanks in advance.

    • ANSWER:
      I assume you two file your taxes jointly. Well, making a 0,000, you are in the 25% tax bracket. Deducting ,500 would put still leave you in the 25% tax bracket. A 401 (k) will only deduct her total federal income tax, not put you in a lower tax bracket.

      It is a pre-tax account, so the contributions are taken out before income, state, and payroll tax.

43. QUESTION:
    Tax Question: 10k IRA income….10K couples deduction….taxes due???
    If a 60+ year old couples only taxable income was 10k from a 401k and they took the 10k couples deduction would any federal tax be due? I ask the same question but the only taxable income is from CD interest. Nether spouse is yet collecting social security. Would social security income make a difference?

    • ANSWER:
      If your reportable income is under ,500, whether from IRA’s or CD’s, you don’t have to file and don’t owe anything. If you were also collecting ss, that might make a difference depending on how much ss you were getting.

44. QUESTION:
    What are some other good tax shelters besides 401k and college for kids.?
    I’m a self employed property owner. The property that I’m renting is gonna net me about 0,000. This is after everything, and puts me in the 33% federal tax bracket. What are some other tax shelters I can use? If I were to pay an additional 0k toward the principal of my mortgage, could I use that as a deduction?

    • ANSWER:
      No, no, no! Interest is deductible. Principle is not. Pay the minimum payment.

      Call your bank/broker and ask about Keogh plans and Simplified Employee Pension plans. It sounds like Keogh (which is a pension plan for self employed people) is what you need, but you should have someone look at the details of your situation.

45. QUESTION:
    My job no longer matches 401K contributions for thier plan,?
    can i still contribute to my own 401K tax-deferred plan and take the deduction on my taxes for the year?

    • ANSWER:
      Yes.. !

      And even without the match you are saving on income taxes every year while building a nestegg for retirement.

      Good Luck!

46. QUESTION:
    What the tax deductions for the unemployed? Do you have to pay the 10% penaltiy on 401K if you default on loan?

    • ANSWER:

47. QUESTION:
    Can I deduct 401k contribution from the taxable income in 1040 form (box 32-IRA contribution)?
    This is my first year I participated in my employer sponsered 401k plan. I do not know how to report my 401 contribution in my tax return. Is 401k and IRA same in the tax deduction section of 1040 form (Box 32)? Is my w2 income (box1) includes the amount I contributed in 401k plan? .. help please..

    • ANSWER:
      The 401 K Contribution should have already been backed out of your federal wages on your W-2. To check, this is a simple trick. Look at box 1 of your federal wages. It should be different than the state wages on your W-2. Is the difference your 401 K Contribution? If it is, don’t sweat it. It’s already backed out of your federal wages on your W-2. Email me with further questions if you want

48. QUESTION:
    Does a 401K deduction reduce federal, state and local taxes?

    Ok, so on my paycheck if I have a deduction for 401K, my federal taxes are reduced, so are my state and local taxes also reduced by the 401k deduction?

    • ANSWER:
      When you contribute to a 401K, you are contributing your own earned income into a qualified retirement plan but deferring taxes on it until retirement.

      If your earnings for the year was ,000 and you contributed ,000 into your 401k, you will only pay taxes this year on ,000. You won’t pay taxes on the other ,000 until you retire and start taking the money back out of your 401K plan. The assumption is that your taxable income will be less at age 65 or whatever age is your retirement age, so your taxes will be less on that ,000 at that time. The 401K money is also invested over that time and is hopefully earning money for the time it is invested.

      Your W-2 should have all the numbers filled out in the appropriate boxes. Just fill in the numbers from the W-2 on to your tax form. Your employer has already filled in how much you contributed to your 401K on the W-2.

49. QUESTION:
    Can taxes on supplemental income be avoided by placing it all in 401k?
    An employee was being paid commission and had elected to make his 401k deduction 100% of his net income. Does supplemental income have to be taxed federal and state? Can he use his 401k elective to avoid paying taxes on suuplemental income?

    • ANSWER:
      No. The most that can go into the 401K is 92.35%. The remaining 7.65% is needed for social security taxes and medicare taxes.

50. QUESTION:
    I changed job (mid year), which does not have qualified 401k. Is my IRA contrib eligible for tax deductions.?
    In my previous job i was having qualified 401K plan.

    • ANSWER:
      yes