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audjle10
Returning Member

401K change impact

What is the impact on my refund/amount owed at tax time, if I move a portion of my 401K contribution from post tax to pre tax?  For example, using round numbers:  

 

I contribute 15% to my 401k.  10% pre-tax, 5% post-tax (or Roth); $100,000 annual salary.

I have my withholdings set up such that my tax return bottom line is roughly $0.

If I move that 5% post-tax to pretax, I know my present day tax liability will go down by a percentage of that $5,000.  But what will be the impact on the amount owed/refunded at tax time, assuming no other changes?  Since my withholdings will also decrease, I am assuming - theoretically, at least - there should be no significant difference.

6 Replies
macuser_22
Level 15

401K change impact

You can only convert a Traditional 401(k) to a 401(k) Roth and pay the tax.   It is not possible to convert a 401(k) Roth to a Traditional 401(k).   Once the money is in a Roth it is always a Roth.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
audjle10
Returning Member

401K change impact

Thanks, but that is not my question.  My question concerns future contributions, not converting past contributions from Roth to traditional.  I want to know the impact if, instead of contributing 10% tax deferred and 5% post-tax, I contribute 15% tax deferred moving forward.

macuser_22
Level 15

401K change impact

New 401(k) contributions are not reported on your tax return as taxable income so your total taxable income and the tax will be lower, but when the money is finally distributed to you it will be taxable.

 

401(k) Roth contributions are included in you taxable income.   When you finally take the money out it will be tax free since you already paid the tax.

 

How much difference in your tax depends on your total income from all sources and margional tax rate.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
audjle10
Returning Member

401K change impact

Sorry, I understand everything you are saying but I am already clear on all those points.  What I need to know is what impact contributing 15% to traditional 401K as opposed to 10% will have on my current withholding - and ultimately amount refunded or owed - if I do not change my W4.  I should not have introduced anything about the Roth; it only serves to confuse things so I apologize.  

macuser_22
Level 15

401K change impact


@audjle10 wrote:

Sorry, I understand everything you are saying but I am already clear on all those points.  What I need to know is what impact contributing 15% to traditional 401K as opposed to 10% will have on my current withholding - and ultimately amount refunded or owed - if I do not change my W4.  I should not have introduced anything about the Roth; it only serves to confuse things so I apologize.  


As I said.   Less taxable income will result in a lower tax and need less withholding.   How much is not possible to say without knowing everything on your tax return.     Your taxable income is the total of all income after deductions.   How much tax depends on your tax bracket and margional tax rate.

 

I suggest that you create a dummy tax return exactally the same as your 2020 tax return and then change your W-2 box 1 by the amount that the 5% contribution change would represent (the current contribution amount will be in box 12, code D.  If that is 10% then divide it in half which would be 5% and subtract that amount form box 1).

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
audjle10
Returning Member

401K change impact

Got it. Thanks; I will do that.  

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