newAndImproving
Confused about dryer sheets
What changes to Roth vs 401k contributions should I consider making if the current payroll tax cut idea becomes a reality?
If my payroll taxes go to zero, it would make sense contribute to post-tax retirement accounts only because it would end up being the same amount in, with better tax treatment out.
What is confusing me is that it would be a mid-year tax cut, so using the basic example below, my tax rate would effectively be the same for the whole year, but that might not be how the taxes are applied.
Would the outcome be that income for the first 6 months is taxed at 20% and then the second 6 months are taxed at 0% (even if my apparent income is higher), so it makes sense to shift your contributions for the second half? Can I then move around contributions retroactively from the first half to reduce my tax load during that time, knowing that my post-tax accounts will meet my goals for the year from higher contributions during the second half?
Tldr: mid-tax year tax changes confuse me
Example
Six months: 20% tax
Six months: 0% tax
Result: 12 months: 10% tax ??
If my payroll taxes go to zero, it would make sense contribute to post-tax retirement accounts only because it would end up being the same amount in, with better tax treatment out.
What is confusing me is that it would be a mid-year tax cut, so using the basic example below, my tax rate would effectively be the same for the whole year, but that might not be how the taxes are applied.
Would the outcome be that income for the first 6 months is taxed at 20% and then the second 6 months are taxed at 0% (even if my apparent income is higher), so it makes sense to shift your contributions for the second half? Can I then move around contributions retroactively from the first half to reduce my tax load during that time, knowing that my post-tax accounts will meet my goals for the year from higher contributions during the second half?
Tldr: mid-tax year tax changes confuse me
Example
Six months: 20% tax
Six months: 0% tax
Result: 12 months: 10% tax ??