Bonus Pay

[magrahari]

Is there any tax benefit to move your bonus pay to traditional 401K at the bonus pay?

I heard that bonus pay are taxed higher initially at pay day and at the end of year when we file taxes it balances out as normal?

In that case, we still would benefit from the 9-10 months investment growth if we get our bonus by February? I mean until December the investment might grow a little and we still pay the same amount of tax at end of year right? Or there are any consequences of paying the taxes later at end of year? Any fess or fine that might be associated?

[MarilynG1]

Bonus pay is usually taxed the same as your regular Payroll, so whatever you set up on your W-4.

It's added to your income on your tax return, and taxed at the rate your total income dictates, which may be higher with the income increase.  For instance, if you're normally in a 15% tax bracket, the addition of a large amount of income could increase your tax rate to 20%.

It's always a good idea to contribute tax-free to your 401K; however, you may need to set it up with Payroll in advance so you don't have an Excess Contribution, if you're already contributing through payroll deductions.  Or you could contribute to a Traditional IRA with your bonus income.

Here's more info on Retirement Savings and Tax Rates, and How Bonuses are Taxed. 

@magrahari