401K change impact

Forum|Forum|5 years ago
May 20, 2021
1 reply
8 views

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.

macuser_22

Alumni - Champ

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.**

audjle10Author

Level 2

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

Alumni - Champ

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.**