Need help adjusting my deductions and IRA contributions

[Nik0226]

Hi all.

I recently talked to a co-worker who tried to explain the idea of contributing to my 401k in order to reduce my taxable income and offset my taxes to the Feds.

I am curious how this works and also, I cannot seem to find anybody who can tell me what I need to contribute in order to offset my taxes and also, I am curious if upping my deductions will make it so that I don't see any Fed taxes coming out of my paycheck (I'd rather see it all going to my 401k even if the stock market is imploding)

I have tried finding tax calculators and asking around (including on turbo tax's chat help) and nobody has been able to help me. I'm not looking for "tax advice" but if someone is able to formulate the amounts that I need to contribute and what I need to put into my deductions on my W4, that would be awesome.

Just for the ease of formulating, I'm salaried at 105,000

I currently have $16,850 put into my deductions box on box 4(b)

my 401k pre tax contributions are set at 7% with an employer match up to 6%

Any help would be great. I know nothing about this stuff (obviously)

[JWings]

As far as I know you can not contribute directly to your 401K, but ask your payroll department.   Money put into a 401K are deducted from your paycheck by your company, and put into your 401K.    You can up the percentage from 7%.   Ask your payroll department what is the maximum percentage you can contribute.   You can contribute a maximum of $22,500 ($30,000 if over 50) from your paycheck if your employer allows it.

You can also open an IRA for 2022 taxes up to April 15, but you can only contribute $6,000 ($7,000 if over age 50).   If you are probably in the 22% tax bracket, so contributing $6,000 would reduce your federal taxes by $1,320.   I don't think there is anything you can do to totally eliminate paying federal taxes.

Adding a large amount in 4B on a W4 will reduce or eliminate taxes being taken out of your paycheck, but you will then probably owe a huge amount to the federal government when you file your taxes.   Also if you owe too much to the federal government, you will have to pay a penalty for underpayment.    I suggest you leave 4b empty for a year, and then see what you owe or get back on that years taxes.   If you get a large refund on that years taxes, then put that dollar amount on line 4b for the next year.   Then if nothing changes on your taxes, you will come out not getting a refund, or owing.

[Nik0226]

Thanks, I appreciate your help.

the issue is with my current cost of living and living situation, I cannot afford to contribute to my 401k AND have my checks siphoned with Federal taxes, It's either one or the other at the moment and I had hoped that by raising my deductions and contributing to my 401k, i could essentially reduce my tax bill down to nothing. I also have an LLC that I have yearly expenses with so that helps to offset my tax bill a bit. I just was not sure if contributing enough to my 401k would keep me from having a tax bill at the end of the year if I raised my deductions so that no fed taxes were with held.

[JWings]

As they say.... "There is no avoiding death or taxes".   You can up your deduction amount on your W4, but you will have to pay a big tax bill when you file your taxes, and possibly a penalty.   You have to decide, to pay now or pay later.    Putting more in your 401K may not be a good idea, if you have to take money out of the 401K to pay the taxes later.   If you are under 59-1/2 you may have to pay a 10% additional tax penalty on top of the normal taxes.    You may be able to take a loan from your 401K, but your employer would have to allow that.   The advantage of the loan from the 401K is that when you pay it back, you are paying yourself back.