How does with holdings work

[Murse]

i will be getting access to my 457 soon and curious how this works. So let's say my income is 70k and I don't have access to a pretax retirement account. When I get a retirement account and max it with 18k for the year, how does that change what I should do with my withholdings? Are withholdings based on a nominal dollar amount or are they a percentage based on how high your income is? Is there a way to calculate what you should make your withholdings to break about even at the end of the year?

[Sailor Sam]

If you're talking about w4 witholdings, you can use this calculator, programed by your friendly IRS. You can also use the wage bracket tables, if you want to calculate stuff yourself

The calculation goes a little like this:

  Gross Salary
- Pretax Retirement
= Taxable income before w4 exemption
-  amt of w4 exemption
= Taxable income after w4 exemption
- Taxes (Fed based on income after exemptions, Med based on gross income, tricky!)
= Net.

[Rezdent]

Sailor Sam,

Thanks for the link to the calculator.  I've been using the wage tables forever.

Murse
There are definitely some sweet spots for maximizing if you are near the edge of two brackets.  I run the numbers every year at least once, and anytime something changes.
For example, our health care deductions will change in January, these are pretax, so they will change the amount of taxable income used in the calculation.  If this puts me at the lower end of a bracket, I will look at the amount going to retirement, and if adding a few dollars will push me into the lower bracket I may do it.

Sometimes putting more into retirement will give me a bigger paycheck.

[Murse]

If you're talking about w4 witholdings, you can use this calculator, programed by your friendly IRS. You can also use the wage bracket tables, if you want to calculate stuff yourself

The calculation goes a little like this:

  Gross Salary
- Pretax Retirement
= Taxable income before w4 exemption
-  amt of w4 exemption
= Taxable income after w4 exemption
- Taxes (Fed based on income after exemptions, Med based on gross income, tricky!)
= Net.

Did not know this existed, thanks.