- April 21, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Increasing 401k Contribution Percentage to Manage Taxable Income during Outage Season
Outage season is approaching at my job, where we work long hours for several weeks. I am considering increasing my 401k contribution percentage to reduce my taxable income and avoid paying more taxes on the extra overtime I will be working.
With the possibility of reaching the $23,000 annual limit on 401k contributions due to the overtime, I am seeking advice on managing this situation to optimize tax savings.
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The AI Legalese Decoder can analyze your current financial situation, projected earnings, and tax implications to provide personalized recommendations on optimizing your 401k contributions. By leveraging AI technology, you can make informed decisions to effectively manage your taxable income during outage season and maximize tax savings.
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overtime isnt taxed any differently than any other income, so it doesnt really matter.
just make sure if you get a company match and end up maxing out your limit early in the year that your plan has a “true up provision” so that you dont miss out on any of your match.
They might withhold more of the overtime pay but at the end of the year all of your income is taxed the same whether it’s base pay, OT, bonuses, etc.
I think you have a lot of confusing out taxes work and progressive tax scales work.
Tax time everyone year is just correcting how much taxes you paid for the year threw either a refund or you paying more. It is based on completely how much you earned at the end of the year. Going up in a tax bracket does no mean you lose money. Just more of each additional dollor you make gets taken out.
401k if you max out early stop taking money out and then they will do a true up later if you maxed out earily.
The reason you see more money withheld during over time is withholding is paycheck amount x Number of checks = total for year for tax bracketing reason. This can cause a single paycheck to be withheld like you are making a lot more than normal. For example in the past I had a 4 year retention bonus put on in my check. Instead of being put in like a bonus got put in like normal income. For that single check it looked like I made 700k for the year so yeah the withholdings were high and a little messed up. Come doing my taxes that year I got a massive refund. Reality I made 130k for year but that single paycheck I had 15 or 16k withheld.
Remember tax time is just a true up to match your taxes to the correct for the year.
In your case I would adjust yourwitholding and it is something you should fix at least once a year any how. For 2023 I messed up my withholding and had to much withheld so my refund was a little to big. My solution to it was to fix my w4 and reducing my withholding to what I over pay . My goal for 2024 taxes is to get a very small refund.