My Last Paycheck
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Last Friday, I received my last paycheck of 2006. The statement shows that for 2006, I have
- Contributed $12,600.12 in the 401(k) plan
- Paid $14,128.85 of federal taxes
- Paid $7,363.68 of Social Security taxes
- Paid $2,570.03 of NJ state taxes
In addition, my employer has matched $1,930.77 in my 401(k) plan (the free money). 2006 is the first full year I am with my current employer, and these numbers will appear in the W-2 form that I will receive next month. There are a couple of items that I want to explain a little bit.
First, the number shows that I actually didn't max out the 2006 401(k) contribution limit, which is $15,000. The contribution percentage was set at the beginning of 2006 and I didn't change it since then. The reason is that I wanted to leave a little more in my own pocket as we plan to buy a bigger house (with four bedrooms, our current townhouse has three) next year if the conditions are right. Therefore, I didn't feel guilty of not contributing the maximum amount allowed.
Then, the federal tax withhold. For the past several years, we always had to pay back taxes on April 15th, which didn't make me feel very good (I don't like giving back a big chunk of money all at once, and prefer spreading it throughout the year instead). After examining our tax situation, I concluded (maybe wrongly) that the reason we had to pay back taxes was we didn't have a lot of deductions. So I changed the number of allowances on my W-4 form from 1 to zero in the middle of the year. I don't know how much this will affect our tax payments or whether the total federal tax federal withhold is enough or not.
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“First, the number shows that I actually didn’t max out the 2006 401(k) contribution limit, which is $15,000″
You did very well. And far more than most people.
Changing your w4 from 1 to 0, you may get a little refund
amazing, you contribute $1,000 pre-tax each month to 401k! i’m just doing 6% to get company match, however, i would up that to 9% in january. how much (percentage wise) do you save after-tax?
does it make you upset that you pay so much in tax? i used to complain about that when i worked in jersey. now working in new york, federal plus state take full 40%!
http://www.javacalc.com has a simple 1040 tax estimation calculator that you could use to approximate your tax liability.
Seems to me it should be pretty easy to put $15K in a 401(k) on an income of $90K+.
Why would you want to overpay to social security? Check with your payroll department, they should stop deducting that money once you hit the limit. I agree with Terry, you can afford to max out your 401k. That small amount oof money you’r saving won’t make a difference when buying a new home because if you truly require that extra savings, then you should buy a slightly less expensive house.
Terry & Mike: Yes, I actually don’t find putting away $15K in my 401(k) any problem to do and I think I should max it out. The only reason I didn’t this year is to have a little more in my own hands to save for possible house downpayment or investing in other stocks/mutual funds. For next year, I will increase my contribution a little bit to get close to the maximum. Today’s $3K will make a big difference 20 or 30 years later.
If I were in your shoes, I would definately max out 401K, tax matters as you might already feel. Depends on your time horizon, after tax stock play, unless you can consistantly pick up winners and sell at the right time, can hardly void the tax advantage offered by tax deferred account.
Meng: I agree with that we should take the most advantage of the tax deferred account, though I am a little bit short of contributing the full amount. The reason for that was I want to keep a little more at my hands for the pending (if at all) house downpayment and this is short term only. Hopefully, we will max out soon.