Should I contribute a small amount to a traditional 401k to reduce tax burden

[houchen]

That past few years I have owed a small amount of taxes. Roughly $500 or less. This year I am set to contribute $23k to my Roth 401k by the end of the year and my company match will be roughly $3.7k (3%) or so. I have already maxed out my Roth IRA and I am wondering if there is a benefit to contribute some to a traditional 401k this year, maybe contribute $500 to it?
Will this reduce my tax burden and if so, in the future would it be best to do it in my IRA or a 401k? I file my taxes as Single.

[teen persuasion]

If you have already maxed out your Roth IRA, you have no more room to contribute to a deductible tIRA - the max contribution is for either/both combined.

[Caliscotsman]

Have you maxed your 401K?

[houchen]

Have you maxed your 401K?

Not yet. I am expecting to max it out in December. It is all Roth.

[Hyperchicken]

What is your marginal tax rate?

You may be better off switching your Roth 401(k) contributions to traditional.

Is $500 your tax liability or the amount you owed after withholdings? Roth/traditional choice has nothing to do with the latter.

You are making $120k annually based on your match (3% = 3.7k) and you file single, which puts the top of your income into 24% bracket. You should switch all your 401(k) contributions to traditional, based on the incomplete data that you provided. Or, provide more data for better advice.

[Harmanic]

It is good to have some tax diversification, but if your income tax bracket is really low, then all your contributions should be to Roth unless it disqualifies you from a means tested government benefit like the Savers Credit.

[02nz]

Sounds like you have around $123K of income. For a singler filer, that puts you into the 24% tax bracket. I would definitely be going all or mostly traditional for the 401k in your situation, to save the 24% federal income tax (and 22% below that). The only exception would be if you expected very rapid income growth, that would put you into a much higher tax bracket in the next several years.

[Harmanic]

The OP said he had $500 in taxes owed. That would mean his taxable income would be very low and his marginal tax rate would be around 10%.

[houchen]

What is your marginal tax rate?

You may be better off switching your Roth 401(k) contributions to traditional.

Is $500 your tax liability or the amount you owed after withholdings? Roth/traditional choice has nothing to do with the latter.

It looks like it was likely 24% in 2023 with 7.65% in FICA. No state income tax. This year I have gotten two raises and am unsure what my total will be however likely 24%. In 2023 I made $110k and this year my currently salary after a few raises is $128k.

I am not sure if the $500 is due to withholdings or not. I assume it is a tax liability.

[Harmanic]

What is your marginal tax rate?

You may be better off switching your Roth 401(k) contributions to traditional.

Is $500 your tax liability or the amount you owed after withholdings? Roth/traditional choice has nothing to do with the latter.

It looks like it was likely 24% in 2023 with 7.65% in FICA. No state income tax. This year I have gotten two raises and am unsure what my total will be however likely 24%. In 2023 I made $110k and this year my currently salary after a few raises is $128k.

I am not sure if the $500 is due to withholdings or not. I assume it is a tax liability.

If all you are trying to do is avoid owing $500 on next year's tax return, then just increase your payroll withholding by $500.

[houchen]

Sounds like you have around $123K of income. For a singler filer, that puts you into the 24% tax bracket. I would definitely be going all or mostly traditional for the 401k in your situation, to save the 24% federal income tax (and 22% below that). The only exception would be if you expected very rapid income growth, that would put you into a much higher tax bracket in the next several years.

Very close. In 2023 my salary was $110k. In 2024 after a few raises it is $128k. And my marginal tax rate was 24% in 2023 and I suspect it will be the same this year.
Is there any good literature on this? Where I can get a better understanding of when to contribute to a Roth and when not to? Rather than, "low income, go Roth".

[houchen]

The OP said he had $500 in taxes owed. That would mean his taxable income would be very low and his marginal tax rate would be around 10%.

Marginal tax rate is 24%.

[Nate79]

If you owed taxes when you filed then changing to a traditional 401k won't affect that because your employer won't withhold taxes for thr 401k contribution anyways. You can make an estimated tax payment or just increase your withholdings. Maybe you owed due to savings account interest, dividends or capital gains?

[steadyosmosis]

Doing "what if" tax returns usually provides answers to these questions.
OP likely should be doing all traditional 401k, but not enough information provided to be sure.

[mhadden1]

Sounds like you have around $123K of income. For a singler filer, that puts you into the 24% tax bracket. I would definitely be going all or mostly traditional for the 401k in your situation, to save the 24% federal income tax (and 22% below that). The only exception would be if you expected very rapid income growth, that would put you into a much higher tax bracket in the next several years.

Very close. In 2023 my salary was $110k. In 2024 after a few raises it is $128k. And my marginal tax rate was 24% in 2023 and I suspect it will be the same this year.
Is there any good literature on this? Where I can get a better understanding of when to contribute to a Roth and when not to? Rather than, "low income, go Roth".

The Bogleheads wiki has a discussion of "Traditional vs. Roth". In your case, if you can defer your taxes in the 24% bracket via your 401k contributions, and then withdraw in retirement with a lower rate, that's a win for you.

It sounds like you, like many (most?) people, are not as familiar with the details of your tax situation as you could be. You will do yourself a lot of good if you can brush up on this. The web is full of resources - if you have questions, I'm confident the forum will help.

[houchen]

Sounds like you have around $123K of income. For a singler filer, that puts you into the 24% tax bracket. I would definitely be going all or mostly traditional for the 401k in your situation, to save the 24% federal income tax (and 22% below that). The only exception would be if you expected very rapid income growth, that would put you into a much higher tax bracket in the next several years.

Very close. In 2023 my salary was $110k. In 2024 after a few raises it is $128k. And my marginal tax rate was 24% in 2023 and I suspect it will be the same this year.
Is there any good literature on this? Where I can get a better understanding of when to contribute to a Roth and when not to? Rather than, "low income, go Roth".

The Bogleheads wiki has a discussion of "Traditional vs. Roth". In your case, if you can defer your taxes in the 24% bracket via your 401k contributions, and then withdraw in retirement with a lower rate, that's a win for you.

It sounds like you, like many (most?) people, are not as familiar with the details of your tax situation as you could be. You will do yourself a lot of good if you can brush up on this. The web is full of resources - if you have questions, I'm confident the forum will help.

I definitely need to get more familiar with it and will start with the BogleHeads wiki. Absolutely will ask more questions here.

[physics911]

Owing $500, at your income, is almost a perfect sweet spot. I get trying to get it closer to $0, which is fine, but remember, every dollar refund you get means you have given the government an interest free loan for that amount. So, owing $500 means, if you invested like a Boglehead, you put every dollar you could to work for your future, and over-shot by a very small margin.

[nostresshere]

PLEASE PLEASE PLEASE do not say you paid $500 income tax.

Guessing it was more like $10,000+. Thinking you paid $500 is just a worthless statement. I am guessing you were were short $500 from witholding vs actual taxes due in April.

Okay - end of slam. Most Americans think that way. I get it. And if you got $700 back, they think they actually got some sort of windfall.

If you were only off by $500 - that is pretty good.

[houchen]

PLEASE PLEASE PLEASE do not say you paid $500 income tax.

Guessing it was more like $10,000+. Thinking you paid $500 is just a worthless statement. I am guessing you were were short $500 from witholding vs actual taxes due in April.

Okay - end of slam. Most Americans think that way. I get it. And if you got $700 back, they think they actually got some sort of windfall.

If you were only off by $500 - that is pretty good.

I did not say I paid $500 in income tax. I said I owed $500. Implying an additional $500.

[LotsaGray]

PLEASE PLEASE PLEASE do not say you paid $500 income tax.

Guessing it was more like $10,000+. Thinking you paid $500 is just a worthless statement. I am guessing you were were short $500 from witholding vs actual taxes due in April.

Okay - end of slam. Most Americans think that way. I get it. And if you got $700 back, they think they actually got some sort of windfall.

If you were only off by $500 - that is pretty good.

I did not say I paid $500 in income tax. I said I owed $500. Implying an additional $500.

What you actually did say was, “ I am not sure if the $500 is due to withholdings or not. I assume it is a tax liability.”.

The $500 was not your tax liability. Your tax liability was likely about $10k. Let’s assume exactly $10K and the $500 represents the portion of that liability not covered by the $9500 withheld by employer.

[BirdFood]

Have you maxed your 401K?

Not yet. I am expecting to max it out in December. It is all Roth.

I think one large question here is why you chose Roth. I’m not saying it was the wrong choice—I don’t know. But if you haven’t done the math to work out whether Roth or traditional is better, it would be worth doing.

[ivk5]

Is there any good literature on this? Where I can get a better understanding of when to contribute to a Roth and when not to? Rather than, "low income, go Roth".

The Bogleheads wiki has a discussion of "Traditional vs. Roth".

I definitely need to get more familiar with it and will start with the BogleHeads wiki. Absolutely will ask more questions here.

Shortcut: https://www.bogleheads.org/wiki/Traditional_versus_Roth