401K Question...
 

my employer offers matching funds up to 5 percent of my total income. Should I have them do this with pre-tax money or post-tax money?

Are you sure you understand that correctly? Usually it's something like matching your contributuions up to 5%.

Other than that, I'm not sure I understand your question. Are you asking if they should match your gross or your net? Obviously gross will be a bigger number, so x% will be more.

They'll match your money with post-tax money? If I understand that right, it seems like it'd be nice to have them pay the taxes. In essence, it'd really be more like an 8 percent match.

Yes, they will match my contributions up to 5 percent of my annual income. However, I was curious to find out if there were any tax benefits to having them do this pre or post tax. Forgive me for my ignorance, as this is the first job I've had that doesn't involve getting paid every day, watching TV, and getting people drunk.

This is what I was wondering too. I assumed he meant gross vs. net pay.

Yes.

Then it really has nothing to do with your income. It has to do with your contributions. How much do you contribute to your 401k?

Yes, but my question was referring to the fact that maybe they would take less taxes from my gross income if some of it were placed into a 401K account. My guess would be no, but there was wishful thinking.

Our insurance is taken out pre-tax. It ultimately helps you save money. They deduct the amount of your insurance premium from your gross pay, then figure taxes on the new total.

I would recommend pretax to anyone. I'm just not sure how it would work in this case.

I am skeptical.

Many employers are beginning to offer the Roth 401k where you can choose to contribute after tax money (In my situation it didnt make sense, the deduction now is worth more than tax-free later when I'll probably retire at a lower bracket.) However, my employer and every similar plan I've heard of will have the employer contribute pre-tax money, even if you decide to contribute post-tax for your share.

Maybe your different, anyway it depends on your income and this is a relevant question for your own contributions anyway.

<b>MY OPINION</b> is the following: If you are currently in the 25% bracket, it makes more sense to contribute pre-tax money until you deduct yourself into the 15% bracket, then switch to the post-tax contribution.

If your deep into the 25% bracket or worse, put it all in pre-tax and get the deduction now. If your in the 15% bracket, pay the tax now. If your barely in the 25% bracket, do both, first the pre tax till you knock yourself down a bracket, then post-tax.

Wow, I don't know how you guys keep track of all of this.

Is this what I have to look forward to? If so I need to take a finance class now while I'm still in school :)

Moooo

If you contribute pre-tax, then it is deferred income that will not be taxed this year, and your overall witholding should decrease since your taxable income will decrease.

If you contribute post-tax, its treated as normal pay and will be withheld and taxed this year like normal. If you do both, the portion that goes in pre-tax is not taxable and should reduce the withholding, while the portion thats post-tax is taxable and wont change the withholding.

Well, I'm an Actuary. I dont know what everyone else's excuse is. ;)

Pre-Tax. Lowers your tax bracket at the end of the year.

It becomes a part of life, unfortunately. You're at a stage in life where you're planning for what you want to do and be. Once you get into a career, you start to plan for what you want to do/be able to afford to do once you retire. That, and I'm horrible at saving money. This helps.