Before I start, keep in mind that this info is for tax year 2013, not for the taxes you’re preparing right now for last year’s earnings.

New Federal Tax Rates

I’ve put together a little chart so you can match up your TAXABLE INCOME with the percentage you’ll give the US government.

Note to the ladies: Next time some dude tries to impress you by saying that he hates being taxed at the top rate, call him out and ask him what the rate is! I’ll bet you 20 bucks that A) he won’t know and B) he’s not making more than $400,001.

401k Contribution Limits Have Gone Up!

In 2012, the maximum amount of money that you could put into a 401k was $17,000.  Whether you made $20,000 or $200,000, by law, $17k was the max.  In 2013, the government now allows you to contribute $17,500. 

So if your goal is to always max out your 401k, make sure your human resources or benefits people at work know that you want to increase your contribution!

By the way, if you haven’t already seen the forever popular “How to be a Millionaire in 4 Steps Without Having a Big Time Job,” you should read it, as it mentions the necessity to fund these types of accounts.

You can also add more to your Roth or Traditional IRA

In 2012, $5,000 was the max you could contribute.  In 2013, you can now add $5,500.

Sidenote: If you already have a 401k (or a 403b) and you’re looking for another way to insure you have a sound retirement, you need to open a ROTH IRA.  I’ve written a post on how to choose and open your own online brokerage account here.

Why should I care about any of this?

I’m happy to support bridges, roads, and schools, but I don’t want more money to leave my pocket than necessary.  As a result, it is important to take steps to reduce your amount of taxable income.  Within the scope of this post, this can be done by contributing more to your company 401k.  This is especially important if you’re straddling two tax brackets and you want to sneak into the lower one.  For example, why pay a 28% tax rate when you can put a little more away into your 401k and pay a 25% tax rate?  Let me emphasize this point one more time, the more money you put into your Traditional 401k, the lower your taxable income, and the smaller the amount the government can take from you!

What do you all think?

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~

JG