In this video, I’ll be sharing valuable tips on how to maximize your 401k contributions in 2023 while lowering your taxes both today and in the future. I’ll walk you through the contribution limits, explain the differences between traditional and Roth sides, and provide six key tips for optimizing your strategy. Discover how to make the most of employee deferrals, leverage employer matches, and even explore the power of nondeductible contributions and immediate Roth conversions. Don’t miss out on important tax diversification and the potential benefits of credits and deductions. Plus, I’ll shed light on the true-up feature and the roll-up tax strategy. Join me to unlock the full potential of your 401k and secure a brighter financial future.
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Max Fund Your 401k in 2023: Lower Taxes Today and Tomorrow
As we step further into the year 2023, one financial resolution you should strongly consider is maximizing your contributions to your 401k retirement account. By doing so, not only can you secure a comfortable future, but you can also potentially reduce your taxes both now and in the long run. Let’s discuss the benefits of maximizing your 401k contributions and how it can help lower your taxes.
1. Tax-Deferred Growth:
Contributing the maximum amount allowed to your 401k not only sets you up for a financially secure retirement but also grants you immediate tax benefits. By making pre-tax contributions, you reduce your taxable income for the year. Consequently, you pay less in income tax, allowing you to keep a higher portion of your hard-earned money.
2. Employer Match:
If your employer offers a matching contribution to your 401k, maximizing your contributions means taking full advantage of this free money. Employer matching is essentially a form of extra compensation that your employer offers as an incentive to save for retirement. By not contributing up to the maximum, you are essentially leaving free money on the table. Additionally, this employer match also grows tax-deferred, compounding your savings even further.
3. Reduction in Current Tax Liability:
As mentioned earlier, contributing the maximum amount to your 401k can lower your taxable income for the year. This decrease in taxable income translates into a lower tax bill, putting more money in your pocket today. The amount you contribute towards your 401k is deducted from your gross income, reducing your overall tax liability.
4. Lower Taxes in Retirement:
While you reduce your tax liability in the present, maximizing your 401k contributions can benefit you in retirement as well. Since contributions are made on a pre-tax basis, the investment gains in your 401k also grow tax-deferred until retirement. Upon retirement, when you start withdrawing from your 401k, you may be in a lower tax bracket compared to your working years. This can lead to significant tax savings, as you would be paying taxes on the withdrawals at a potentially lower rate.
5. Compound Growth:
By maximizing your contributions early on, you give your investments more time to grow and compound over the long term. As we know, compounding can lead to exponential growth. By contributing the maximum amount, you are setting yourself up for a larger nest egg in retirement, expanding your financial independence.
In conclusion, maximizing your 401k contributions in 2023 can have a double benefit of securing your financial future while also reducing your tax burden. Take advantage of the tax-deferred growth, employer matching, and tax deductions available through your 401k plan. By doing so, you are not only setting yourself up for a comfortable retirement but also decreasing your tax liability both now and in the years to come. Make the most of your financial opportunities, and embrace the potential benefits of maximizing your 401k contributions.
My workplace plan doesn’t allow in-plan conversions or in-service withdrawals. Most company plans don’t as far as I can tell, because providers like Merrill Lynch have no incentive to bother updating their plan documents to allow it. I also can’t make after tax contributions because the company believes the plan would fail top heavy testing if they allowed it.
What is the point of the IRC salary limit on elective deferral? After required deductions for payroll taxes an employee making $X doesn’t have $X to contribute to a 401k because ED is always done via payroll. So far as I know an employee cannot top up their ED contributions with cash outside of payroll.
Great video. Do you still get the standard tax deduction at tax time if you maxed out a 401k? Is it one or the other? Thanks
If you are an S-Corp owner with employees, can you apply similar i401K (solo 401K) strategies? What are the main differences from maxing out at a company 401K versus a solo 401K? Is the solo 401K have better features?
You mentioned the catch-up provision when you talked about the overall cap on contributions to a 401k but failed to include it in the Roth maximum contribution per year. The Roth 401K cap for 2023 is $30,000 for anyone old enough to be able to use the catch-up provision.
I would like to know the best way to pay the withholding on company contributions to a Roth 401K. Normal Roth contributions are included in my paycheck and withholding is calculated to include the Roth amount. Company contributions are not included in payroll, so how can the withholding amount get calculated and paid when the company contribution goes to the Roth account?
Thank you for good info. Please correct me if I am wrong. So in 2023,
I/my company can contribute 66k for solo 401k and $6500 for backdoor roth?
i carry no balance in the Traditional IRA and only use it to roll over into the Roth IRA, so i don't think i have to worry about the prorata rule since there are no profits in the traditional…
my 401k plan allows after tax non roth contributions up to 12% of my salary and in service withdrawls which i roll over into my Roth IRA.
What up Travis
Where does the $66K come from? I thought it was around $22K.