Comments on: 401(k) Contribution Limits for 2007 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Fri, 20 Nov 2009 19:56:44 -0800 http://wordpress.org/?v=abc hourly 1 By: Scott http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-239314 Scott Fri, 22 Feb 2008 22:25:27 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-239314 Keep in mind 'annerj' that if you cash out your 401k for the very meager after tax savings that you will likely be barred from 401k activity for 6 to 18 months per your employers plan document. So you got your $3100 in 'free' money, then lost $930 in penalties and then paid taxes on the money to the tune of 28% plus state and local taxes on the $3100. Assuming a 5% State and local you end up with $1147! yahoo! Then you are banned from your match per plan document and forfeit $1550 to $4650 in future free money.... not looking so good now I bet. If you need to tap more money borrow from your 401k and pay it back. Nice try though. Keep in mind ‘annerj’ that if you cash out your 401k for the very meager after tax savings that you will likely be barred from 401k activity for 6 to 18 months per your employers plan document. So you got your $3100 in ‘free’ money, then lost $930 in penalties and then paid taxes on the money to the tune of 28% plus state and local taxes on the $3100. Assuming a 5% State and local you end up with $1147! yahoo!
Then you are banned from your match per plan document and forfeit $1550 to $4650 in future free money…. not looking so good now I bet.

If you need to tap more money borrow from your 401k and pay it back.

Nice try though.

]]> By: Phillip http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-229044 Phillip Fri, 08 Feb 2008 00:57:11 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-229044 Question: The annual defined-contribution limit (the most an employee and employer together can contribute to all defined-contribution plans combined) will rise to $45,000 from $44,000 in 2007. How does this effect your taxes? You get a tax break on the $15,500 but how does IRS treat the employer match in the tax year and then later at 70.5 yrs of age? Thank you. Question: The annual defined-contribution limit (the most an employee and employer together can contribute to all defined-contribution plans combined) will rise to $45,000 from $44,000 in 2007.

How does this effect your taxes? You get a tax break on the $15,500 but how does IRS treat the employer match in the tax year and then later at 70.5 yrs of age? Thank you.

]]> By: annerj http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-149531 annerj Tue, 09 Oct 2007 20:56:52 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-149531 "Hey, thanks. But that’s what I don’t get. Case 1 (no contributions at all): Taxable income = $103,333. Case 2 (max-out 401k, employer match, early withdraw): 401k contribution = $15,500 + $3,100 (employer match) = $18,600. Early withdrawal (assume full vesting, no cap gains/losses) = $18,600 - $1,860 (10% penalty) = $16,740. Taxable income = $103,333 - $15,500 (401k contribution) + $16,740 (401k early withdrawal) = $104,573. Case 2 leaves you better off. (Remember, we’re operating under the assumption that one is ignoring the benefits of actually saving for retirement under the 401k.) Am I missing something here? " Wouldn't it make even more of a case if you only did the 6% to get the match? Case 3 - (6% 401k, employer match, early withdraw): 401k contribution = $6,200 + $3,100 (employer match) = $9,300. Early withdrawal (assume full vesting, no cap gains/losses) = $9,300 - $930 (10% penalty) = $8370. “Hey, thanks.

But that’s what I don’t get.

Case 1 (no contributions at all): Taxable income = $103,333.

Case 2 (max-out 401k, employer match, early withdraw): 401k contribution = $15,500 + $3,100 (employer match) = $18,600. Early withdrawal (assume full vesting, no cap gains/losses) = $18,600 – $1,860 (10% penalty) = $16,740. Taxable income = $103,333 – $15,500 (401k contribution) + $16,740 (401k early withdrawal) = $104,573.

Case 2 leaves you better off. (Remember, we’re operating under the assumption that one is ignoring the benefits of actually saving for retirement under the 401k.) Am I missing something here? ”

Wouldn’t it make even more of a case if you only did the 6% to get the match?
Case 3 – (6% 401k, employer match, early withdraw): 401k contribution = $6,200 + $3,100 (employer match) = $9,300. Early withdrawal (assume full vesting, no cap gains/losses) = $9,300 – $930 (10% penalty) = $8370.

]]> By: A Preview of the 2008 Federal Income Tax Brackets » Financial Consultants World Blog » Financial Consultants World http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-144403 A Preview of the 2008 Federal Income Tax Brackets » Financial Consultants World Blog » Financial Consultants World Wed, 26 Sep 2007 19:35:44 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-144403 [...] 401(k) Contribution Limits for 2007 [...] [...] 401(k) Contribution Limits for 2007 [...]

]]> By: Scott Ferguson http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-62424 Scott Ferguson Fri, 12 Jan 2007 21:45:58 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-62424 Oh, woops, I read further. You answered it, thanks Oh, woops, I read further. You answered it, thanks

]]> By: Scott Ferguson http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-62423 Scott Ferguson Fri, 12 Jan 2007 21:44:58 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-62423 If an employer makes a matching contribution to your 401(k), is that contribution subject to the contribution limit, or is it in addition to it? I can't seem to find any information about this. If an employer makes a matching contribution to your 401(k), is that contribution subject to the contribution limit, or is it in addition to it? I can’t seem to find any information about this.

]]> By: Free Money Finance http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-52352 Free Money Finance Fri, 08 Dec 2006 11:20:47 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-52352 <strong>Star Money Articles for the Week of Dec. 4</strong> Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Consumerism Commentary has some thoughts on Quicken 2007. AllFinancialMatters lists 401k contribution limits for 2007. MightyBargainHunter wonders how much his ... Star Money Articles for the Week of Dec. 4

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Consumerism Commentary has some thoughts on Quicken 2007. AllFinancialMatters lists 401k contribution limits for 2007. MightyBargainHunter wonders how much his …

]]> By: fin_indie http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-52082 fin_indie Thu, 07 Dec 2006 16:27:55 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-52082 What I cannot understand is why we're now only increasing the limits by $500 per year, whereas before we were twice that at $1000 per year. Does someone think we've solved the american savings crisis? I wrote a bit about this here: <a HREF="http://retiringearly.blogspot.com/2006/10/new-2007-401k-limits.html" rel="nofollow"> http://retiringearly.blogspot.com/2006/10/new-2007-401k-limits.html</a> What I cannot understand is why we’re now only increasing the limits by $500 per year, whereas before we were twice that at $1000 per year. Does someone think we’ve solved the american savings crisis? I wrote a bit about this here:

http://retiringearly.blogspot.com/2006/10/new-2007-401k-limits.html

]]> By: Brad http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-52045 Brad Thu, 07 Dec 2006 10:57:55 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-52045 Ok, so effectively what you're saying is you pay taxes on penalty money that you never actually see. So the comparison is really: Case 1: Taxable income $103,333 Case 2: Taxable income $106,433, plus you lose $1,860 after taxes What's the after-tax difference on an extra $3,100? Even if you're in the high 35% bracket, it's only an extra $1,085 in taxes owed. $3100 > $1,860 + $1,085. Isn't case 2 still preferable? In the end, of course, I'm interested in what general rule of thumb there might be -- what sort of employer matches enable such opportunities? Thanks for helping me think through this. Ok, so effectively what you’re saying is you pay taxes on penalty money that you never actually see. So the comparison is really:
Case 1: Taxable income $103,333
Case 2: Taxable income $106,433, plus you lose $1,860 after taxes

What’s the after-tax difference on an extra $3,100? Even if you’re in the high 35% bracket, it’s only an extra $1,085 in taxes owed. $3100 > $1,860 + $1,085. Isn’t case 2 still preferable?

In the end, of course, I’m interested in what general rule of thumb there might be — what sort of employer matches enable such opportunities? Thanks for helping me think through this.

]]> By: Investorial @ InvestorGeeks http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/comment-page-1/#comment-52024 Investorial @ InvestorGeeks Thu, 07 Dec 2006 05:38:41 +0000 http://allfinancialmatters.com/2006/12/06/401k-contribution-limits-for-2007/#comment-52024 Brad, You aabsolutely are missing something.. the full $18,600 is taxable income.. not just the $16,740. The 10% penalty is additional to any taxes you incur Brad,

You aabsolutely are missing something.. the full $18,600 is taxable income.. not just the $16,740. The 10% penalty is additional to any taxes you incur

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