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I just learned I can have 401K taken from my bonus, prior to…

Customer Question
I just learned I...

I just learned I can have 401K taken from my bonus, prior to this the taxes on my bonus are 38%, how much should I have taken from my bonus and put into my 401K?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

My bonus is not yearly it is a monthly bonus

Accountant's Assistant: Is there anything else important you think the Accountant should know?

Not at this time

Submitted: 2 months ago.Category: Tax
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Answered in 11 minutes by:
12/21/2017
Tax Professional: Lev, Tax Advisor replied 2 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,321
Experience: Taxes, Immigration, Labor Relations
Verified

First of all - when you said that the bonus is taxes at 38% rate - that is NOT actual tax liability - but withholding.

The purpose of withholding - to cover possible tax liability - which is calculated on the tax return based on TOTAL income, filing status, deductions, etc.

Your actual tax liability may be more or less than withholding.

Contribution into 401k plan allows to defer (not avoid !) tax liability.

Funds in 401k plan are not taxable when contributed - but will be taxable when eventually you will take contributions.

Regarding contributions...

The contribution percentage is set in plan documents - but for most plans - may not be more than 50% of compensation - wages, bonuses, etc.

The total amount you may contribute during the tax year is limited.

For 2017 - that limit is $18,000 AND FOR 2018 - $18,500

Let me know if you need any help.

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Customer reply replied 2 months ago
1 will be 59 on 12/24/2017 how much can I contribute in 2018 to 401k currently I have it 50/50 401k and Roth
Tax Professional: Lev, Tax Advisor replied 2 months ago

For those above 50 - additional catch-up contribution - up to $6000 is allowed.

So total 401k contribution limit will be $24,000 for 2017 and $24,500 for 2018.

You may choose what part to contribute to Roth 401k portion.

In additional - your employer may make matching 401k contribution - up to 25% of your compensation.

Please be aware of TOTAL limit into ALL qualified retirement plans - for 2017 - that limit is $54,000.

.

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Customer reply replied 2 months ago
My bonus check is $1200 per month our current tax rate is 24%, right now my bonus is $700.00 net how much should I contribute to 401k to keep Bonus check net the same as it is now
Tax Professional: Lev, Tax Advisor replied 2 months ago

If we will only talk about withholding -

there are social security and Medicare taxes $1200 * 7.65% = $92

federal income tax - assuming 25% --> $300

state income tax withholding - depending on your residency - assuming $100

Thus we will have net after withholding $708

.

If - for instance from that bonus you put $200 into 401k plan - social security and Medicare taxes will be the same, but income tax withholding will be reduced to $250 federal and $83 for state.

So net after ALL withholding $1200(gross) - $92( social security and Medicare) - $200 (401k contribution) - $250 (FIT) - $83 (SIT) = $575

.

If you choose $600 contribution - the situation will be different - net after ALL withholding $1200(gross) - $92( social security and Medicare) - $600 (401k contribution) - $150 (FIT) - $50 (SIT) = $308

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Tax Professional: Lev, Tax Advisor replied 2 months ago

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.

I am here to help you with all Social Security / Tax related issues.

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