Working years: Avoiding taxes like a pro (so far not so much!)

[neo von retorch]

So I'm a relatively newbie, and I just set up my 401(k) with the new job a few weeks ago. I only opted to put in 4% because they only contribute 25% up to that limit (up to 1% match). I have no other retirement contributions.

Gross: $80,000
Weekly contribution / match: $61.54 / $15.38
Weekly Paycheck: $1025
(after 4% 401(k), health insurance and taxes)

It might be 3-6 months before I can change that. Is there some way to contribute to a traditional IRA tax free in the meantime?

[Joel]

I usually wait to make my IRA contribution until I am filing my taxes. Why can't you fix the % of your paycheck going to your 401k now?

[more4less]

1. Max out your 401K - it's $17500/yr
2. Contribute to IRA (Roth or traditional) - $up to 5500/yr
After this you can do less flexible things like opening HSA account (for healthcare expenses, given that you're eligible) and 529 plan (for educational expenses).

Do you have web thing to change your 401K contribution? I have 401k with Fidelity - it's super easy.

[seattlecyclone]

You should be able to change your 401(k) contributions at any time throughout the year. There's no open enrollment period for this. You may have to wait until the next full pay period for changes to take effect, but you shouldn't have to wait 3-6 months.

For an IRA, if you have a 401(k) at work you need your MAGI to be below $60k (as a single person) to make those contributions be fully deductible. The deduction gets phased out if your MAGI is between $60k and $70k. If you have pre-tax deductions (401(k), health insurance, HSA, etc.) that bring your MAGI down below $70k, you could potentially make some amount of deductible IRA contributions. The more you can put in your 401(k), the higher your IRA contribution limit will be.

[neo von retorch]

I sent off an email to HR because I actually have no idea where my new 401(k) is or how to access it right now. I asked about being able to change the contribution. I suppose if I can make my 401(k), my MAGI would be $80k-$17.5k-$1.7k (Health) => $60.7k minus various other deductions (state tax: $2450, mortgage interest: $3500, ???) so perhaps at that point I could start getting tax deductible IRA contributions. Otherwise, is it better to just put money in a Roth if it isn't going to be tax deductible?

[seattlecyclone]

If you can get your MAGI down to $60.7k, you'll be allowed to contribute about $5,115 to a deductible IRA (compared to $5,500 if your MAGI was below $60k. You won't know your exact limit until you do your taxes and calculate your final MAGI, so you might want to wait on making at least part of your contribution until then, because small changes in income will change your deductible contribution limit. Once you figure out your deductible contribution limit, the difference between that amount and $5,500 can be contributed to a Roth IRA.