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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: nsmall on January 01, 2020, 02:56:18 PM

Title: Help with 403b and 457 taxes
Post by: nsmall on January 01, 2020, 02:56:18 PM
This is a real question.

Do I lose anything (pay more taxes later) if I max out my 403b and 457 in the first 6 months of the year vs over 12 months?

Sorry if this is a confusing question, I am just wondering if I pay extra in taxes for the second 1/2 of the year if I max them out in the first 1/2 of the year. 

Thanks in advance.
Title: Re: Help with 403b and 457 taxes
Post by: terran on January 01, 2020, 03:17:44 PM
No, you don't lose anything on taxes by maxing 403(b) and 457(b) in the first six months. There are a couple of considerations though. Some employers will "true up" the match at the end of the year if you max out and stop contributing before the end of the year, others won't, so figure out which your employer is or you might lose some of your match. If you change employers after maxing out the 403(b) you won't be able to contribute to the new employer's plan and will lose the match.

You might pay more tax withholding depending on how you have withholding set up, but your tax liability will be the same, so you'll get that back when you file.
Title: Re: Help with 403b and 457 taxes
Post by: nsmall on January 01, 2020, 05:28:12 PM
Thank you.  Sounds like I may get more withheld for the second 1/2 of the year if I go hard up front, but in the end....my tax liability will be the exact same?

I dont get any sort of a match.

Thanks again.
Title: Re: Help with 403b and 457 taxes
Post by: terran on January 01, 2020, 08:54:16 PM
Yeah, it's possible. Withholding is set up to assume to make the same amount for the whole year, so you'll under withhold for the first part and overwithhold for the second part. I wouldn't worry about it too much. Just take a look at you July withholding and make sure you'll withhold enough by the end of the year to not owe any penalties. You can always add some additional withholding if needed.
Title: Re: Help with 403b and 457 taxes
Post by: Sandi_k on January 02, 2020, 10:48:40 AM
This is a real question.

Do I lose anything (pay more taxes later) if I max out my 403b and 457 in the first 6 months of the year vs over 12 months?

Sorry if this is a confusing question, I am just wondering if I pay extra in taxes for the second 1/2 of the year if I max them out in the first 1/2 of the year. 


Over the course of the YEAR, your tax bill is the same as it would be if you maxed out the 403/457 in the first six months. But your paycheck will be vastly different.

For example, let's say you put $4k each month into 403(b) and $4k each month, Jan-June into the 457. The withholding calcs will assume you are making $96k less annually than you actually are...($8k x 12 months) those first 6 months. So your taxes will be lowered each paycheck, depending on your tax bracket - 32% bracket?

So then, in July, when you're NOT squirreling away that extra $8k, all of it is taxable. So you'd probably have a jump in taxes paid each paycheck - by 35%or so. But since you're not saving in the retirement accounts, you might actually have more money to take home. It won't be a full $8k more each month, but it will be more take-home pay than when you were contributing to the retirement funds.

I hope that makes sense...