Utilize Your 401K and Roth IRA TOGETHER
Get rich or die trying. — 50 Cent
Loopholes weren’t meant to be broken but utilized. How do the rich stay rich? By knowing how to use tax laws and resources to their advantage. Here are some vehicles for you to start.
Let assume, for simplicity, you just turned 30. You have no debts and no savings. You just started a new job paying you $100,000 a year. Not a bad life. But let’s look at how we can bring home more money by reducing our tax burden.
401K
Your new company has a 401K program.
If you don’t take part in the 401K program, your salary is still $100,000. In 2020, the 24% tax bracket is for income from $85,526-$163,300. Tax brackets are complicated, so we will again make an assumption that will make things simple. Let’s say you pay federal taxes of 24% on your income. (This is not how marginal tax rates work, for more info, read here)
Your $100,000 salary is now $76,000 after taxes.
Let’s assume you do decide to utilize your company’s 401K plan. In this example, for each 1% you contribute, they match 1%, up to 3%. For each 1% you contribute from 4–6%, they match at .5%. So if you contribute 6% of your salary, $6,000, to your 401K, your company also contributes $4,500. The first $3,000 you contribute, they contribute…
