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Please help me decide!!
I will make about $150K this year. I have not paid any federal taxes yet.I usually wait until the last quarter of the year since 40% of my pay is bonuses and my total income changes each year.
I have invested $10K into 401K so far. Below are my choices that I need some FI minded folks to help me with (I am still learning).
1. If I max out the rest of my allowed $401K contributions up to $23.5K I will owe about $4K in taxes.
If I choose this option I will have $0 savings AND need to plan on paying taxes in March with penalties.
2. Or I can stop contributing to my retirement this year and instead save the rest of my bonuses as a savings towards my 3 months living expenses, however I will end up owing about $8K in taxes in March with the penalty but will have breathing room for bills.
3. Or I just put money towards federal taxes now through the end of the year with the rest of the pay period and have no savings and no more 401K contributions other than maybe the match and start fresh building up a savings.
I keep thinking I know the right obvious choice but then it changes and then I confuse myself.
Please tell me what I’m not able to see myself.
CecileI like option 1 but am uncomfortable with the fact that you don’t have any savings at all. Are you living paycheck to paycheck?
Have you reviewed your current budget to see if there’s any room to cut?
Any chance of taking on a side hustle?
Anything that you can sell to generate more income? Do you have any debt?
Kind of difficult to give you advice more information about your expenses.
StephanieI choose option 1. But you need to find a way to not live paycheck to paycheck in the future. Paying taxes throughout the year seems like a better way than waiting until Q4 where you’ll end up with penalties.
That said, if you miss putting money into your 401k this year up to the max, you can’t put money in for that calendar year again.
Depends on how quickly you can recover in the new year from the taxes you’ll pay.
If you can’t recover then Option 3.
DaniI would choose the option with the least penalty… and for your budgeting and planning next year asses where your $ is going & see what adjustments can be made to spend less.
Then immediately start saving for your emergency fund, put everything in the first 6ish months towards that.
VanIf it was me Option 1. Then I’d open up a credit card with a good sign on bonus and 0% apr that earns cash back to offset some of charges to pay taxes.
CallieI would choose option 1. As a self employed individual I have a separate tax savings account that I deposit estimated payments into each month.
It’s extremely helpful and I would highly recommend that going forward.
RickOption #1 but only if you cut your expenses immediately to being funding a tax payment sinking fund.
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