You don’t owe me any money. Well, at least right now (wink wink).
But, I bet the IRS has said to you at some point - “You Owe Me Money!” If not to you, then definitely I know your family member or friend has had this happen to them.
I owed money, again! I just sent off my payment today and I think my taxes are too high. I’m not alone - A recent Gallup poll pegged the percentage of Americans who think their own federal income tax bills are too high at 57%.
One of the best ways, however, to INVEST and reduce your tax burden is to put money into a 401k or 403b plan. The most common complaint I hear is “Charisse, I can’t afford to put more money into my 401k plan because then I won’t have enough to live from.” Well, this might well be the case for some of you but I know it’s not the case for all.
Leave a comment below letting me know what your approach has been to putting money in your 401k/403b (or NOT).
The Case for the 401k or 403b
- A regular allocation a 401k or 403b plan gets you in the game of investing for your own long-term benefit. You may not think that they’re actually investing, but you are since you’re investing in mutual funds within the 401k platform.
- Regardless of your debt profile, if your company offers a “dollar for dollar” 401k matching program, putting money into your retirement account is a high return proposition – you are getting a 100% return on your money because for every dollar you put in, your employer puts in a dollar as well.
- Even in the absence of dollar for dollar matching, reducing your taxable income with a 401k will save you dollars at tax time. A 401k is tax-deductible, meaning it will reduce the taxes you pay today. Wouldn’t you rather put money up for yourself than pay the IRS? The maximum contribution to a 401k in the 2016 tax year is $18,000.
- Putting money into a 401k when your housing expenditures are less than 20% of your income and your make over $75,000 in annual income IS easier – it just is. Anyone who tells you an different is lying. The more income you make and the less you spend on housing costs, the more income you have to invest.
What Should You Do?
Evaluate how much money you are currently putting into your 401k. Ask yourself – Do I need an adjustment given a desire to invest more and/or save money in taxes? Share your thoughts with me.