Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?Answering the easy one first: yes.
I made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?
Category | Monthly | Comments | Annual |
Salary/Wages | $4,833 | $58,000 | |
HSA/Pension | $554 | At maximum | $6,650 |
FICA base salary/wages | $4,279 | $51,350 | |
401(k) / 403(b) / TSP / etc. | $1,500 | At maximum | $18,000 |
Federal Adj. Gross Inc. | $2,779 | $33,350 | |
Federal tax | $0 | Zero due to Saver's Credit | $0 |
State/City tax | $97 | Guess, using 3.50% * Fed. AGI | $1,167 |
Soc. Sec. | $265 | Assumes 1 earner paying | $3,184 |
Medicare | $62 | $745 | |
Total income taxes | $425 | $5,100 | |
Income before other expenses | $2,354 | $28,250 | |
Monthly Expenses: | |||
Mortgage | $573 | $6,875 | |
Property Tax | $167 | $2,000 | |
Miscellaneous | $1,260 | $15,120 | |
Non-mortgage total | $1,427 | $17,120 | |
Other tax-advantaged investments: | |||
Roth IRA | $350 | $4,200 | |
Total Expense | $2,350 | $28,195 | |
Total to invest in taxable accounts | $5 | $55 |
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?Answering the easy one first: yes.
The wash sale statute (26 USC § 1091 (http://www.law.cornell.edu/uscode/text/26/1091)) doesn't say anything that would limit its application to securities held in taxable accounts.
IRS Publication 550 (http://www.irs.gov/publications/p550/ch04.html#en_US_2013_publink100010601) says that a wash sale occurs if you timely "acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA". The publication does not mention other tax-sheltered accounts. Note that IRS publications "do not necessarily cover all positions for a given issue" and are nonbinding: Internal Revenue Manual, 4.10.7.2.8 (http://www.irs.gov/irm/part4/irm_04-010-007.html#d0e838).
According to IRS Rev. Ruling 2008-5 (http://www.irs.gov/pub/irs-drop/rr-08-05.pdf), the reason that the IRS considers IRAs and Roth IRAs to be within the scope of the wash sale statute is that they are trusts organised by the taxpayer.
The Ruling does not address the plans commonly referred to as "401(k) plans", but a review of the literal wording of 26 USC § 401 (http://www.law.cornell.edu/uscode/text/26/401) suggests that a 401(k) is also a trust organised for the exclusive benefit of the employee, suggesting it would also be in scope of the wash rule. However, no extant IRS ruling addresses that topic so far as I can find.
In conclusion, you do need to pay attention to transactions in tax-sheltered accounts when conducting tax-loss harvesting because your tax-sheltered transactions may still result in the full or partial nondeductibility of the losses.
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?Answering the easy one first: yes.QuoteI made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?
Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA. But I may have misinterpreted the OP. You can download and enter your own numbers from this post (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228), then come back with more specific questions. Note that Allen's post is likely to be applicable no matter what.
Category Monthly Comments Annual Salary/Wages $4,833 $58,000 HSA/Pension $554 At maximum $6,650 FICA base salary/wages $4,279 $51,350 401(k) / 403(b) / TSP / etc. $1,500 At maximum $18,000 Federal Adj. Gross Inc. $2,779 $33,350 Federal tax $0 Zero due to Saver's Credit $0 State/City tax $97 Guess, using 3.50% * Fed. AGI $1,167 Soc. Sec. $265 Assumes 1 earner paying $3,184 Medicare $62 $745 Total income taxes $425 $5,100 Income before other expenses $2,354 $28,250 Monthly Expenses: Mortgage $573 $6,875 Property Tax $167 $2,000 Miscellaneous $1,260 $15,120 Non-mortgage total $1,427 $17,120 Other tax-advantaged investments: Roth IRA $350 $4,200 Total Expense $2,350 $28,195 Total to invest in taxable accounts $5 $55
If your employer offers a match, then yes there is an advantage. If not, then whichever you prefer.
Is there any advantage to maxing the 403b over the IRA? I have better funds in the IRA and I want to max that before the 403b...
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?Answering the easy one first: yes.QuoteI made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?
Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA. But I may have misinterpreted the OP. You can download and enter your own numbers from this post (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228), then come back with more specific questions. Note that Allen's post is likely to be applicable no matter what.
Category Monthly Comments Annual Salary/Wages $4,833 $58,000 HSA/Pension $554 At maximum $6,650 FICA base salary/wages $4,279 $51,350 401(k) / 403(b) / TSP / etc. $1,500 At maximum $18,000 Federal Adj. Gross Inc. $2,779 $33,350 Federal tax $0 Zero due to Saver's Credit $0 State/City tax $97 Guess, using 3.50% * Fed. AGI $1,167 Soc. Sec. $265 Assumes 1 earner paying $3,184 Medicare $62 $745 Total income taxes $425 $5,100 Income before other expenses $2,354 $28,250 Monthly Expenses: Mortgage $573 $6,875 Property Tax $167 $2,000 Miscellaneous $1,260 $15,120 Non-mortgage total $1,427 $17,120 Other tax-advantaged investments: Roth IRA $350 $4,200 Total Expense $2,350 $28,195 Total to invest in taxable accounts $5 $55
Just had to comment to say this post is beautiful. Clear math breakdown + beautiful formatting. A+, My OCD Engineer heart is swooning hahaShucks, ma'am, here at the MMM forums we just aim to please - glad you like it.
If your employer offers a match, then yes there is an advantage. If not, then whichever you prefer.
One thing to consider - does your employer offer a Roth 403B option? Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point. Also - do you have kids? Didn't see it mentioned, but single income, and married households often have children in them. That dramatically impacts your tax-bill for the better.
Roth accounts are post-tax and you do not have to pay tax on withdrawals. So, if you're reducing your federal tax burden to zero, all of your money is post-tax so you might as well put it in a Roth so you don't pay taxes when you withdraw it. If you put it into a traditional account (which is normally pre-tax income), you pay taxes when you withdraw it.If your employer offers a match, then yes there is an advantage. If not, then whichever you prefer.
One thing to consider - does your employer offer a Roth 403B option? Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point. Also - do you have kids? Didn't see it mentioned, but single income, and married households often have children in them. That dramatically impacts your tax-bill for the better.
My employer gives me 5% of my salary regardless of whether or not I participate in the 403b. Yes, they offer a Roth 403b option. I'm not sure I follow about the 0 Federal tax bill. How does that work? How do I find the point when that happens, and why switch to Roth accounts at that point? No kids.
If your employer offers a match, then yes there is an advantage. If not, then whichever you prefer.
One thing to consider - does your employer offer a Roth 403B option? Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point. Also - do you have kids? Didn't see it mentioned, but single income, and married households often have children in them. That dramatically impacts your tax-bill for the better.
My employer gives me 5% of my salary regardless of whether or not I participate in the 403b. Yes, they offer a Roth 403b option. I'm not sure I follow about the 0 Federal tax bill. How does that work? How do I find the point when that happens, and why switch to Roth accounts at that point? No kids.
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?Answering the easy one first: yes.QuoteI made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?
Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA. But I may have misinterpreted the OP. You can download and enter your own numbers from this post (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228), then come back with more specific questions. Note that Allen's post is likely to be applicable no matter what.
Category Monthly Comments Annual Salary/Wages $4,833 $58,000 HSA/Pension $554 At maximum $6,650 FICA base salary/wages $4,279 $51,350 401(k) / 403(b) / TSP / etc. $1,500 At maximum $18,000 Federal Adj. Gross Inc. $2,779 $33,350 Federal tax $0 Zero due to Saver's Credit $0 State/City tax $97 Guess, using 3.50% * Fed. AGI $1,167 Soc. Sec. $265 Assumes 1 earner paying $3,184 Medicare $62 $745 Total income taxes $425 $5,100 Income before other expenses $2,354 $28,250 Monthly Expenses: Mortgage $573 $6,875 Property Tax $167 $2,000 Miscellaneous $1,260 $15,120 Non-mortgage total $1,427 $17,120 Other tax-advantaged investments: Roth IRA $350 $4,200 Total Expense $2,350 $28,195 Total to invest in taxable accounts $5 $55
Category | Monthly | Comments | Annual |
Salary/Wages | $4,326 | $51,912 | |
Pretax Health Ins. | $85 | $1,020 | |
Pretax Vision/Dental Ins. | $25 | $300 | |
HSA/Pension | $471 | $5,649 | |
FICA base salary/wages | $3,745 | $44,943 | |
Traditional IRA | $458 | Room to increase? | $5,500 |
Employer Non-Match Contribution (5%) | $216 | $2,596 | |
Income subject to IRS tax | $3,287 | $39,443 | |
Federal Adj. Gross Inc. | $3,287 | $39,443 | |
Federal tax | $83 | 2015 rates, stand. ded., 3 exempt. | $997 |
State/City tax | $283 | Guess, using 8.60% * Fed. AGI | $3,392 |
Soc. Sec. | $232 | Assumes 1 earner paying | $2,787 |
Medicare | $54 | $652 | |
Total income taxes | $652 | $7,824 | |
Income before other expenses | $2,635 | $31,619 | |
Monthly Expenses: | |||
Mortgage | $733 | $8,801 | |
Property Tax | $15 | $180 | |
Mortgage Insurance | $39 | $462 | |
Hazard Insurance | $33 | $397 | |
Cable TV | $140 | $1,680 | |
Car Insurance (2 Cars) | $55 | $660 | |
Car Gas (2 Cars) | $150 | $1,800 | |
Electricity | $35 | $420 | |
Gas/Oil for heating | $50 | $600 | |
Groceries | $200 | $2,400 | |
Phone (cell) | $17 | $204 | |
Recycling/Trash | $15 | $184 | |
Water/Sewer | $25 | $300 | |
Non-mortgage total | $774 | $9,287 | |
Loans: | |||
Shed Loan | $387 | $4,639 | |
Student Loan | $146 | $1,746 | |
Other tax-advantaged investments: | |||
Roth IRA | $458 | $5,500 | |
Total Expense | $2,498 | $29,973 | |
Total to invest | $137 | $1,646 | |
Summary: | |||
"Gross" income | $4,326 | $51,912 | |
Income taxes | $652 | $7,824 | |
After-tax income | $3,674 | $44,088 | |
IRA+401k/403b/TSP/457 (Savers' credit) | $917 | $11,000 | |
Living expenses | $2,088 | $25,057 | |
Non-mortgage loans | $532 | $6,385 | |
After-tax investable | $137 | $1,646 | |
Time to FIRE?: | |||
Income after RE (pension, SS, etc.) | 25000 | /year | |
Time to FIRE | 15 | years | |
Safe Withdrawal Rate | 4.00% | percent | |
Real return on tax-deferred investments | 6.67% | percent | |
Real, after tax, return on taxable investments | 5.00% | percent | |
Current Savings | |||
Tax-deferred (e.g. trad. IRA/401k) | $8,875 | ||
Roth | $4,125 | ||
Projected Savings at Retirement | |||
Taxable | $35,529 | ||
Tax-deferred (e.g. trad. IRA/401k) | $221,653 | ||
Roth | $145,572 | ||
Total projected stash | $402,754 | ||
Projected Expenses in Retirement | |||
Non-loan, non-work expenses | $9,287 | ||
Total | $9,287 | ||
Stash needed for retirement @4.0% SWR | -$392,830 | ||
Have $795,584 extra. |
You want to find the sweet spot where you pay under 15% tax, maybe under 10%. If you pay 0%, you are mssing an opportunity. Every $ you put in traditional becomes taxable income later when you pull it out. Every $ you put in roth is taxed now (possibly at 0% or 10%) and is not income later when you pull it out.Good points, and the referenced thread is also good. One caveat: the income tax calculator linked in the referenced thread's OP does not account for the saver's credit. The saver's credit could have a significant impact on the taxes of this thread's OP.
Read this post. It will help explain this concept very well:
http://forum.mrmoneymustache.com/welcome-to-the-forum/optimize-your-taxable-income/
I will read that thread after my brain has had a chance to rest, haha. What IS the Saver's Credit?
Thanks MDM and Allen. So I plugged my numbers into the spreadsheet according to what I would like to do (Max my HSA, my Traditional IRA and husband's Roth IRA without touching my 403b because I can't afford it...). My taxes seem wonky. According to my most recent paystub, I am paying 216.64/mo State Tax and 249.38/mo Federal Tax. Are the numbers on the spreadsheet modified by my hypothetical plan to save more in the IRAs and HSA? I entered the Oregon State tax I paid in 2014, although the gross wages I am entering for 2015 will be less because I had a shift change and lost my shift differential. My total mortgage payment is actually 943/mo and I think it has something to do with escrow shortage, but I'm not sure how to account for that in the spreadsheet.State taxes vary a lot. Some are straight percentages, some have multiple brackets, etc. With a brief glance at Oregon's, for your income range the calculation seems to be ($4,320 is the standard deduction, $16,300 is the beginning of the 9% bracket, and 5%*6500+7%*(16300-6500) is the tax for the lower brackets):
I also don't understand the "Time to FIre" Chart and calculations. Why is the "Stash needed @ Retirement" in parentheses and in red? What is the "Have $795,584 extra"? Why does the chart start at $400,000 at year 0? What does it all mean?!Because you entered $25000/yr as "Income after RE (pension, SS, etc.)", and your "Non-loan, non-work expenses" are only $9,288/yr, the spreadsheet figures you already have more than enough (from a pension, SS, etc.) to retire and don't need any investment income. If you aren't counting on a pension, Soc. Sec., etc. then enter $0 for the "Income after RE."
State taxes vary a lot. Some are straight percentages, some have multiple brackets, etc. With a brief glance at Oregon's, for your income range the calculation seems to be ($4,320 is the standard deduction, $16,300 is the beginning of the 9% bracket, and 5%*6500+7%*(16300-6500) is the tax for the lower brackets):
(Federal AGI - Federal Tax - $4,230)*9% + 5%*6500 + 7%*(16300-6500) - (No. of Exemptions) * $191.
In the spreadsheet, with 9% in cell H23, you could enter "=H23*(G5-D34-4320-16300)+5%*6500+7%*(16300-6500)-G9*191" in cell G23. You'll also have to enable iterations, because in theory the federal tax could depend on the state tax (if you itemize) and Oregon's state tax depends on your federal tax...or you could enter some estimate as you did.
The federal tax calculations are pretty good, and do reflect whatever you have input for IRA, HSA, etc. The amount withheld on your paycheck is determined by what you tell your employer on your W-4. If you change your IRA, HSA, etc., do change your W-4 also so you get the cash due you throughout the year.
The spreadsheet calculates "mortgage payment" as the principal plus interest you pay each month. This is the amount you stop paying when the mortgage is over. You might be including a property tax escrow, and maybe insurance, in your monthly payment to the loan holder. Those expenses will continue after the mortgage is paid and should be listed in separate lines on the spreadsheet. You might be undercounting the property tax...$180/yr seems very low...?
With that change, it shows ~10 years until you have the $232,200 needed to cover $9,288 in annual expenses. That is a very low annual expense - great for you if true, but "user beware" if you have overlooked something.
Make sense? If not, post back.
I would also argue that most people maxing the 401k/403b, hsa, ira... are not doing so on a household income of 58k gross.
Not saying it doesnt happen but it's a bit harder at that income level.
I will read that thread after my brain has had a chance to rest, haha. What IS the Saver's Credit?
A credit of up to $2k I think? Maybe 1k per person, 2k per couple. Make a certain amount of money, you get a 10% credit. Make a lot less, get a 20% credit. Make even less, get a 50% credit.
It's the IRS subsidizing retirement savings for people they think can't afford to save. But they don't know about the MMM community yet I guess.
Read the thread and you'll learn a lot more.
Thanks for the calculation for Oregon State tax, I updated that cell and enabled iterations. Okay, so the amount withheld is obviously not exactly what I'm paying in taxes, since I could be getting a refund or paying more tax at the end of the year? Currently I have "3" on my W-4. This gives me more money throughout the year than 2, right?Yes to both questions.
My 1098 shows mortgage interest at 5739.99 in box 1 and Mortgage Insurance premiums at 462.24 in box 4. My Tax and Insurance Activity list: Property Tax: 179.23, Hazard Insurance: 397.07, Mortgage Insurance: 462.24, Escrow Refund: 111.01. I'm not sure why my property tax is so low...? I had a new shed built on the property this year, so maybe that is where my "escrow shortage" of $98 came from? Maybe my property tax went up this year?Don't know what to say about your property tax. Based on http://www.tax-rates.org/propertytax.php?state=oregon it seems it ought to be higher, but you pay whatever you pay.
Makes sense. But why is my mortgage not included in the annual expense? Is it assumed that it will be paid off before FI? Without loans and mortgage, my monthly expenses are pretty much what the spreadsheet is showing. I don't think I've forgotten anything, but I will double check. This amount doesn't include "fun money" or extra savings, though, so I can add that in.Yes, that is the assumption this tool makes. You could add back the mortgage payment in the "Change in spending after RE" box near the bottom for a more conservative look.
QuoteMy 1098 shows mortgage interest at 5739.99 in box 1 and Mortgage Insurance premiums at 462.24 in box 4. My Tax and Insurance Activity list: Property Tax: 179.23, Hazard Insurance: 397.07, Mortgage Insurance: 462.24, Escrow Refund: 111.01. I'm not sure why my property tax is so low...? I had a new shed built on the property this year, so maybe that is where my "escrow shortage" of $98 came from? Maybe my property tax went up this year?Don't know what to say about your property tax. Based on http://www.tax-rates.org/propertytax.php?state=oregon it seems it ought to be higher, but you pay whatever you pay.
So I discovered something interesting while investigating the property tax conundrum...my mortgage lender listed the property tax on the 1098 as $179.23. However, when I actually logged into the lender's website and looked at the transactions, I noticed that they had actually paid $1775.95 for property tax. I verified this by digging out the property tax statement sent to me from my county tax office. The county billed my lender, the lender paid $1775.95, and then they reported on the 1098 that they only paid $179.23. I'm not sure what to do. I guess I'll contact them and see what's up, but I should definitely report the $1775.95 on my tax return as the amount I paid, correct?
If a portion of your monthly mortgage payment goes into an escrow account...deduct the amount actually paid out of the escrow account during the year to the taxing authority.
my state refund jumped a few hundred dollars when I entered the correct property tax amount. :)
I would also argue that most people maxing the 401k/403b, hsa, ira... are not doing so on a household income of 58k gross.
Not saying it doesnt happen but it's a bit harder at that income level.
Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?
Pretty good return for your time on the lender's site and checking your county tax statement - well done!
Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?
The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.
That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.
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NO -- the 18k is the limit for employee contributions. Employer contributions are on top of it. So you can contribute 18k as an employee and the employer contributes $2550 (5%).Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?
The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.
That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.
Sent from my iPad using Tapatalk
Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year? And what is the 25% vs. $18,000 rule, is it really whichever is less??
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?Answering the easy one first: yes.
The wash sale statute (26 USC § 1091 (http://www.law.cornell.edu/uscode/text/26/1091)) doesn't say anything that would limit its application to securities held in taxable accounts.
IRS Publication 550 (http://www.irs.gov/publications/p550/ch04.html#en_US_2013_publink100010601) says that a wash sale occurs if you timely "acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA". The publication does not mention other tax-sheltered accounts. Note that IRS publications "do not necessarily cover all positions for a given issue" and are nonbinding: Internal Revenue Manual, 4.10.7.2.8 (http://www.irs.gov/irm/part4/irm_04-010-007.html#d0e838).
According to IRS Rev. Ruling 2008-5 (http://www.irs.gov/pub/irs-drop/rr-08-05.pdf), the reason that the IRS considers IRAs and Roth IRAs to be within the scope of the wash sale statute is that they are trusts organised by the taxpayer.
The Ruling does not address the plans commonly referred to as "401(k) plans", but a review of the literal wording of 26 USC § 401 (http://www.law.cornell.edu/uscode/text/26/401) suggests that a 401(k) is also a trust organised for the exclusive benefit of the employee, suggesting it would also be in scope of the wash rule. However, no extant IRS ruling addresses that topic so far as I can find.
In conclusion, you do need to pay attention to transactions in tax-sheltered accounts when conducting tax-loss harvesting because your tax-sheltered transactions may still result in the full or partial nondeductibility of the losses.
I think she meant the actual practice of tax-loss harvesting, which (obviously) there is no advantage to doing in tax advantaged accounts.
Of course I could be wrong, and maybe she wanted to know all about wash sale rules. In which case you seem to have that covered ;)
I think this was covered while I typed but it's already typed, so....The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.
That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.
Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year?
And what is the 25% vs. $18,000 rule, is it really whichever is less??Yes, you are stuck with whoever (between your employer and the IRS) sets the lower limit. But it is to the advantage of the company bosses to have the lower paid employees contribute more, so unless said bosses are more obtuse than usual it will be the IRS limit that affects you.
NO -- the 18k is the limit for employee contributions. Employer contributions are on top of it. So you can contribute 18k as an employee and the employer contributes $2550 (5%).Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?
The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.
That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.
Sent from my iPad using Tapatalk
Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year? And what is the 25% vs. $18,000 rule, is it really whichever is less??
And there is no 25% rule from the IRS standpoint, but your employer may have restrictions on how much you can contribute. That is why it is so important to contact your HR department for the rules governing your specific plan.
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Well, maxing a 401k could mean the maximum income percentage of 25% but I tend to think most are in the $18,000 a year maxing. I'm the latter.To the OP -- I can now see your confusion about the 25% number. It is due to the post above. AFAIK, there are no official IRS rules that put a 25% limit.