A bonus from the Government? “Spend” it wisely!

Posted on: 2/4/11 by Kevin P. O'Leary, CPA

One of the big shocks coming from the government lately was the reduction in the Social Security withholding tax. In the past 6.2% of your wages up to $106,800 were withheld for "your" social security account (basically the max they would withhold would be $6,621) but currently the rate has been reduced to 4.2% - which is a shock to a lot of people because of the problems you hear about social security having being in the RED all the time. It will produce revenue for the government though because now that amount that used to be withheld pretax will be taxable income to the employee - unless..... think about increasing your 401(k) contribution by the 2% - meaning net-net you will be taking home the same amount of money as in the past but you will be banking more for your retirement - basically let this reduction fund your retirement account. If you are over the wage threshold of $106,800 or you are already contributing the max to your retirement account this might not be that big of a deal to you but if you are not in either one of those boats think about it!!!

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