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What does make more sense: to maximize 401k contributions, or limit them to 5%, and maximize SS benefits?
I doubt there is a clear answer, although...
How do you maximize SS benefits? It's based on your income, besides, you pay into SS and receive a defined benefit when you retire. With 401K's and IRA's, you control the investment and withdrawal strategies.
I don't understand the question. SS benefits are not changed because of 401k.......
It seems SS benefits are based on my income less 401k contributions. SS does not see 401k contributions, as I don't pay FICA on them! That is what have found on the Internet.
401k are funds that belong to you. SS is potentially an unknown as the benefit may change to solve future problems.
Let's do an example. Say you're saving $10,000 in your 401k. If you stop saving it, your SS benefit will increase by $1,500/yr or $125/mo in our simple example. Now, if you invest that $10,000/yr for 30 years and make a 5% return, it's value will be $664,388 and assuming another 30 years of withdrawals, you'd get $22,146/yr or $1,845/mo, assuming no further appreciation. For a fair comparison, you'd have an extra $10,000 in income. But, you'd also pay taxes and SS on it, so your net might be $6,880. $6,880 invested may get you $457,099, which amounts to $1,269/mo under the same scenario.
It seems SS benefits are based on my income less 401k contributions. SS does not see 401k contributions, as I don't pay FICA on them! That is what have found on the Internet.
Nope. 401K does not reduce the amount you pay in SS taxes and therefore does not reduce your future benefits. Look at your W2. The amount in Box 3 (SS Wages) is the total of your earnings and is what you pay SS on. Box 1 (Wages, tips and other compensation) is your earnings less any 401K contributions and the amount you pay on for federal taxes.
Nope. 401K does not reduce the amount you pay in SS taxes and therefore does not reduce your future benefits. Look at your W2. The amount in Box 3 (SS Wages) is the total of your earnings and is what you pay SS on. Box 1 (Wages, tips and other compensation) is your earnings less any 401K contributions and the amount you pay on for federal taxes.
I was curious when they said they read on the internet. My immediate thought like yours was aren't they looking at their paycheck? I checked their posting history and they have Medicare and SS questions and probably could use a good primer on the overall topic.
It seems SS benefits are based on my income less 401k contributions. SS does not see 401k contributions, as I don't pay FICA on them! That is what have found on the Internet.
What is your source? Not everything on the internet is true, so it is important to consider the source. Here is what the IRS says on the matter:
Generally, these deferred wages (commonly referred to as elective contributions) are not subject to income tax withholding at the time of deferral, and you do not report them on Form 1040 (PDF), U.S. Individual Income Tax Return, since they were not included in the taxable wages on your Form W-2 (PDF), Wage and Tax Statement. However, they are included as wages subject to withholding for social security and Medicare taxes.
Could be he's a government or USPS employee? If he was hired prior to '84 he'd be under the Civil Service Retirement Service, I don't know but maybe that's what he's talking about?
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