Increase Your 401K Contributions by 2% in 2011
Social Security taxes have been reduced in 2011 by 2%. This means you can increase your 401K contribution by 2% and see NO reduction in your take-home pay!!!
The Social Security tax withholding rate has decreased from 6.2 percent to 4.2 percent for all employees for 2011. This 2 percent tax reduction is applied to employee wages up to the Social Security wage base of $106,800. Any individual earning $106,800 or more in wages in 2011 will receive a benefit of $2,136.
If there are two spouses with wage income, each spouse will derive this tax benefit. Self-employed individuals will also receive the 2 percent tax reduction as the Social Security portion of self-employment tax will be 10.4 percent as opposed to 12.4 percent. Medicare tax of 1.45 percent will continue to be withheld on all wage income with no ceiling (2.9 percent self-employment tax).
Employers continue to pay 6.2 percent Social Security tax on employee wages. This provision replaces the Making Work Pay Credit in effect for 2009 and 2010 that provided a credit of up to $400 for single taxpayers and up to $800 for married joint filers.
January 14, 2011 by Michael Brandt · 1 Comment
Love Life, Family, and Friends. I work on mortgages to help people make the best financial decisions.
Terrific information!
Another fact to take in to consideration is if the Employee is making their 401k deferral in the Roth 401k side and the Employer is Matching a portion of contributions is the Employer Match is always submitted in to the Traditional side of the 401k. In essence, that employee deferring money in to the ROth 401k will have 2 different buckets in which to draw retirement income at Retirement. One bucket as the Roth 401k which is Tax-Free and one bucket as the Traditional side of the 401k which would be taxable distributions.
The maximum amount that an employee can defer in a 401k for 2011 is as follows:
Under age 50= $16,500
Age 50+ = Catch up of $5,500 ($22,000 total)