About
Taxes
Sometimes
it's easy to resent taxes, but try applying a little gratitude
thinking here. You have to have some income in order to have to
pay taxes. And there are a lot of people in this world who would
feel blessed to have that kind of income.
From
The Success Journey's Tax Expert
PLANNING
FOR 401K DEFERRALS
Maximizing
Your Affordable Contribution
Even
if you cannot contribute the maximum amount you may be able to
increase your contribution by taking the tax savings from your
contribution into your planning.
To
calculate the percentage of tax savings,
Divide
the amount you want to contribute by (1 minus your combined total
of federal, state and local tax bracket), then divide the result
by your gross salary and round to the nearest whole percent. This
gives you the percentage you can use to calculate your maximum
contribution.
For
example, if you are married filing
jointly and you believe that
you can contribute 5% of your
income ($1500) and your tax brackets
are:
| Federal |
15% |
|
| State |
6%
___
|
|
| Total |
21%
( or 0.21) |
|
Your
tax savings would be $315 ($1500 times 21%), so your out of pocket
cost would only be $1185.
Therefore, you could, if you choose, contribute a larger percentage
of your salary.
From
above, 1 - 0.21 = 0.79. So your
calculation would be $1500 divided by 0.79 = $1899.
For
instance:
Assume,
that your income is $32,000.
$1899 divided by $32,000 = 5.93%.
So
if you round the percentage to 6% (which comes out to $1920),
your after- tax cost would be $1517 ($1900 times 0.79).
On
the other hand, if you should elect to contribute $1800 instead,
the after-tax cost would be $1422 ($1800 times (1 - 0.21)).
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