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Old 04-18-2011, 03:24 AM
 
24,511 posts, read 33,903,718 times
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Quote:
Originally Posted by mathjak107 View Post
speaking of close to being accurate what tax system are you on? 16k federal on 100k income. ????????????? .... tax on 100k for a single filer less the standard deduction and 1 exemption is 20k federal and about 5k state and local here in nyc. with fica i get 32k ..

health insurance for my wife and i is 9k a year through work ,closer to 10-11k on our own .
One way to reduce your taxes is to put as close to the $49k limit into your 401k. Then live off the remaining income.
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Old 04-18-2011, 03:26 AM
 
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Originally Posted by NJBest View Post
One way to reduce your taxes is to put as close to the $49k limit into your 401k. Then live off the remaining income.
Wow, my company 401k limiited me to $21500 and that was with the over 50 catchup.
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Old 04-18-2011, 03:32 AM
 
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49k in a 401k is not correct. the limit is 22k on a 401k...defined contribution plans are 49k not 401k's. ....

http://www.themoneyalert.com/Retirem...an-Limits.html
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Old 04-18-2011, 03:46 AM
 
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Quote:
Originally Posted by mathjak107 View Post
49k in a 401k is not correct. the limit is 22k on a 401k...defined contribution plans are 49k not 401k's. ....

IRA and 401k Contribution Limits
That site is misleading. I do this every year. $49K into 401k. You're only limited by how you choose to be employed and who you choose to work for.

Check out: http://en.wikipedia.org/wiki/401(k)_IRA_matrix

Contribution Limits$16.5k/yr for under 50, $22k/yr for 50 and over in 2010; limits are a total of trad 401(k) and Roth 401(k) contributions. Employee and employer combined contributions must be lesser of 100% of employee's salary or $49k.

Check out: 401(k) Plans For Small Businesses (http://www.dol.gov/ebsa/publications/401kplans.html - broken link)



Contribution Limits - Employer and employee contributions and forfeitures (nonvested employer contributions of terminated participants) are subject to a per-employee overall annual limitation. This limit is the lesser of:
  • 100 percent of the employee’s compensation, or
  • $49,000 for 2010 and 2011.
In addition, the amount employees can contribute (elective deferrals) under any 401(k) plan is limited to $16,500 for 2010 and 2011.
All 401(k) plans can allow catch-up contributions of $5,500 for 2010 and 2011 for employees age 50 and over.

Last edited by NJBest; 04-18-2011 at 03:55 AM..
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Old 04-18-2011, 03:55 AM
 
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a typical 401k is an elective deferal plan limited to 22k. the 49k is more like a profit sharing plan where the employer kicks in the rest.

401k limits are $16,500 ($22,000 if over 50+ years of age). that is what an employee can contribute to their account. However, with an employer’s company matching and/or profit sharing, the limit is much, much higher.

" the annual limit for each employee is $49,000 or $54,500 if you are over 50. Here’s how it works. If your company is structured as a corporation, the employer can contribute up to 25% of the company’s W-2 payroll into the 401(k) plan. This including your employee’s contribution of up to the $16,500 -- is capped in total at $49,000. If your business is an LLC, it is 20% of your net schedule C (IRS form) with the same $49K limit.

Last edited by mathjak107; 04-18-2011 at 04:06 AM..
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Old 04-18-2011, 04:02 AM
 
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Originally Posted by mathjak107 View Post
your confusing 2 things.

an employee can only contribute up to 22k. the employer can contribute up to 26k .. the total for both cant exceed 49k per employee. if it includes a profit sharing plan then total compensation including forfeitures cant exceed 49k.
Correct. Well, it can also be $16,500 employee contribution and $32,500 employer contribution. So what you do is reduce your W2 salary, and increase the employer contribution. This is commonly done to reduce exposure to taxes.

So let's say you get paid $150,000 and typically put $16,500 into your 401K. You switch it up so you get paid $117,500 and $32,500 is contributed to your 401K. Yes, this can only be done by those with higher income, but it can be done and many do it.

The savings in taxes are enough incentive to take control of your compensation situation.

The IRS only requires that your income not be reduced to a number that is considered unfair for the type of work you do.
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Old 04-18-2011, 04:05 AM
 
24,511 posts, read 33,903,718 times
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Quote:
Originally Posted by mathjak107 View Post

Here’s how it works. If your company is structured as a corporation, the employer can contribute up to 25% of the company’s W-2 payroll into the 401(k) plan. This -- including your employee’s contribution of up to the $16,500 -- is capped in total at $49,000. If your business is an LLC, it is 20% of your net schedule C (IRS form) with the same $49K limit. While this limit is unrealistic for many companies with a large employee base, the amount an employee can benefit is well beyond what most people are aware. These high limits can be quite a benefit with real saving and tax opportunities for you and your employees."
Exactly! These savings over your career are enough to make sure you are in a position to take advantage of it. It was my primary motivator for making career decisions several years ago.
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Old 04-18-2011, 04:10 AM
 
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Quote:
Originally Posted by NJBest View Post
Correct. Well, it can also be $16,500 employee contribution and $32,500 employer contribution. So what you do is reduce your W2 salary, and increase the employer contribution. This is commonly done to reduce exposure to taxes.

So let's say you get paid $150,000 and typically put $16,500 into your 401K. You switch it up so you get paid $117,500 and $32,500 is contributed to your 401K. Yes, this can only be done by those with higher income, but it can be done and many do it.

The savings in taxes are enough incentive to take control of your compensation situation.

The IRS only requires that your income not be reduced to a number that is considered unfair for the type of work you do.
hmmmmmm so what your saying is have the employer cut your compensation on w2 and then give it back to you in profit sharing.

i cant imagine most employers would do that since it has to be for every employee who is in the plan. that profit sharing money gets divided among everyone and with it the rest of your pay. if you can find a company that works like that that would be great.
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Old 04-18-2011, 04:15 AM
 
24,511 posts, read 33,903,718 times
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Originally Posted by mathjak107 View Post
hmmmmmm so what your saying is have the employer cut your compensation on w2 and then give it back to you in profit sharing.

i cant imagine most employers would do that since it has to be for every employee who is in the plan. that profit sharing money gets divided among everyone and with it the rest of your pay. if you can find a company that works like that that would be great.
It's the reason why I started my own business. So I have total control and pay no taxes. I think I posted earlier that I haven't had to pay taxes since 2005 or 2006 (I don't remember which year the last return where I paid was for off the top of my head). Everyone has the option to do what I did. I'm not anymore special then anyone else.

I don't see why people work for employers that limit their options so much. You need to be in control of your compensation (and life in general) or you're not doing yourself justice.

These tricks weren't even hard to grasp either (and I'm glad to share them). I can't believe how many people miss it in their annual reading of tax code.

Last edited by NJBest; 04-18-2011 at 04:31 AM..
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Old 04-18-2011, 05:34 AM
 
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thinking about it further it really is a poor scheme for an employee unless that profit sharing part is not coming out of his compensation.
if its a real profit sharing plan then thats fine,its over and above your pay.

other wise unless its a tiny company where you are controlling your own employment its a terrible risky ploy.

if you are trading some pay for that extra tax deferal and have the employer contribute some of your pay for you as a profit sharing ploy it could be a real bone headed move.

if you leave before 5 years i believe you will forfeit a percentage a year of what the employer contributed back in the pool to be re-distributed among those that are in the plan.. .. typically you get to keep 20% more a year of that money . ,. it takes 5 years to get all of whats do you in the plan so its all yours.

you may end up forfeiting what really amounts to your pay just for the speculation you may be in a lower tax bracket later on when you retire. not worth it in my book.

Last edited by mathjak107; 04-18-2011 at 06:10 AM..
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