401(k) Mistakes You Might Be Making

Are you depositing into the “before tax” part of your 401(k)? If you are, you could be thinking you are getting a huge tax break, but not getting what you think you are getting! Especially if you think that our tax rates and tax brackets will go up in the future…

Don’t dismiss this please. PLEASE read this!

But I’m deferring $18,000! $24,000! You don’t know what you are talking about you might say. Well, we have bad news for you, and here is the proof:

In the attached example tax return #1, both John and Susie Wagearner are earning $100,000. They are both tax-deferring $24,000 into the “before tax” side of their 401(k) which is distribution code D on the W-2 worksheet page #3 of the attachment. So they are deferring $48,000 each year out of $200,000. Surely they would benefit from this tax deferral right? Yes, but they are saving only $13,000 in this example. BUT, NOW THIS MONEY IS TAXABLE FOR THE REST OF YOUR LIFETIME, AND WILL MOST LIKELY MAKE YOUR SOCIAL SECURITY TAXABLE FOR THE REST OF YOUR LIFETIME ONCE YOU TAKE IT… Could that be a mistake for you if you fast-forward to your retirement years? Has the IRS tailored this to entice you to pay them more in the future?

Look at the attached example tax return #2. Same income, but now they are depositing into the “after tax” side of their 401(k) which is distribution code AA on the W-2 worksheet page #3 of the attachment. Keep in mind that in our opinion, this is the better option for future retirement income purposes. Why? Because you now do not pay taxes on ALL growth in this account, ALL withdrawals in the future, AND with OPJW’s help, you can make your social security income NOT taxable for the rest of your lifetime!!! Also, please don’t think that we are telling you to have less income and have a paltry retirement. Nothing changes in your retirement income except that you are reducing or eliminating your tax liability during retirement.

Take a minute to review these and give us 15 minutes to explain why these tax returns don’t lie, and why this is so important to you. Why hasn’t someone said something to you about this? How would you know this?! You wouldn’t unless someone told you.

At OPJW, we care. We know weird, quirky, and IMPORTANT things like this. We want to help you.

We understand that your income might be higher than this example. That’s ok. It’s even more important that you consider changing things.

We understand that you might not make as much as this example. Either way, let’s just review what you’re doing. I can make a BIG difference in your future!

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