Increasing Contributions to reduce taxable income

[SkyPilot]

Just wondering if anyone else has played around with increasing their TSP contributions to see what the result effect is on their payroll taxes (be reducing their taxable income) and their net pay?

I have been gradually increasing my contribution (now 16%) and it does not seem to be reducing my net pay significantly, but it does seem to have some effect on my state and fed income tax.

My theory is that decreasing my taxable income by making pre tax contributions to TSP may have a net zero effect for my net income (take home pay).

However, comparing pay stubs from month to month is sometimes like trying to decipher the Da Vinci code, so any comments from others would be welcome.

Thanks...

[offtrack]

Here's a federal tax withholding table to calculate whether you'll get a better withholding rate
http://www.purdue.edu/taxes/pdf/federaltaxtables07.pdf

Note your future salary increases would also effect your perception of the change in net.

Wifey contributes 25% and we don't miss it but she only makes a little over $50K a year. This will leave her short of her maximum contribution for this year and she may have to change her contribution from a percentage to a flat $ amount for the last few pay periods.

example from recent stub
gross = $2348
tsp25 = $486
net = $1363

[Wrngway]

I'm trying to remember back to my days of Navy Disbursing. I don't know how much of this translates over to your question, since this was before TSP was introduced to the military.

There was a formula for figuring tax witholding. For the life of me I can't remember what manual it was in though. I would assume whatever forumla is used, it does take into account TSP contributions. Otherwise you'd end up with a rather large refund.

I'd suggest talking to the HR folks, but last time I did that it was like pulling eye-teeth to get a straight answer. There is an equation though...it's not magic and they don't pull those numbers out of a hat.

[SkyPilot]

I'd suggest talking to the HR folks, but last time I did that it was like pulling eye-teeth to get a straight answer.

That is why I came here :D.

[Bullitt]

I messed with this some too. Most people at my place of employment use the excuse that it cuts into necessary money to contri any more than 5% to TSP. Nonsense. Go to www.financialengines.com (http://www.financialengines.com) to test how much will be withheld from each paycheck. The difference surprised me. There weren't significant drops in take home pay with every percentage increase. If you set up a free account with them, it's kind of cool to see their future projections of your TSP and individual trading/stock accounts as well.

[Frixxxx]

Just wondering if anyone else has played around with increasing their TSP contributions to see what the result effect is on their payroll taxes (be reducing their taxable income) and their net pay?
..... Thanks...

try:

https://401k.fidelity.com/401k/tools/takehomepay/takehomepay.htm

have to put in your information for state and guess your rate. But, if you are dropping enough in, it might lower your tax rate for federal.

I in NO do I way endorse Fidelity. They just had a calculator.

[SkyPilot]

Thanks so much for these links. :)

[Wrngway]

Here are Federal Tax Rates for 2007:

http://www.irs.gov/formspubs/article/0,,id=164272,00.html

[VirginiaBob]

I find that no matter how much my salary increases, every 1% I put in the TSP costs $20 per paycheck in net pay.

The same goes with overtime. No matter how much my salary increases, I always seem to get $20/hour in net pay for overtime.

[Frixxxx]

I find that no matter how much my salary increases, every 1% I put in the TSP costs $20 per paycheck in net pay.

The same goes with overtime. No matter how much my salary increases, I always seem to get $20/hour in net pay for overtime.


When I get OT they don't take out TSP!!!!!!!!:blink:

[Bullitt]

It all works out in the long run. At the end of the year, you'll have deposited XX% into TSP, even with OT. Here's a trick a friend of mine taught me.

My friend places a fixed amount into the TSP bi weekly. ie: $700. Any time he works OT or a holiday, etc. he changes the contribution amount for that pay period accordingly. So if he does $400 in OT, he'll add like $300 more to the TSP contri. I think that's a great idea. As long as he doesn't go over the year end limit, he's ok. In fact, there's a rumor that a guy i worked with who retired last year put an entire paycheck into his TSP as part of his catch up contributions.

[Frixxxx]

It all works out in the long run. At the end of the year, you'll have deposited XX% into TSP, even with OT. Here's a trick a friend of mine taught me.

Get to 15,500 and you will be maxed (without catch-up). I participate through Civil Service and reserves.....I get there....15,500. And the number that shall be counteth is 15,500! No more, no less!