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This is actually a followup question to a previous post:

Tax implications for a 100% 401k contribution limit

I mistakenly posted it there first as an answer. I'm new here ... Sorry!

My question concerns a 401K plan and the contribution amount.

In the linked question, it says he/she will contribute $2500 per week to his 401K plan up until the $17,500 limit. However, since SS & Medicare are due, wouldn't the actual contribution be less?

For example, assuming the individual owes 6.2% for Social Security and 1.45% for Medicare, wouldn't the actual contribution be $2,308.75? ($2,500 - $155 - $36.25)

This would mean seven full paychecks and then 58% of the eighth.

Or am I thinking about this all wrong?

Thanks.

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  • You are thinking about it correctly. The answer to that question points out the error: The amount you contribute will reduce the taxable income for each paycheck, but it won't impact the level of your social security and medicare taxes.
    – dcaswell
    Commented Oct 6, 2013 at 13:05
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    Thanks @dcaswell. I thought I was going crazy because I could find no where on the web that made it clear.
    – discerninc
    Commented Oct 6, 2013 at 13:09

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A couple rare items are taken pre-FICA, the Medical Flex Account, I believe is one of them. Then comes FICA/Medicare, and then the 401(k) withdrawal. So your math is correct. There might be other deductions that still get pulled out ahead of a ~93% retirement contribution. Union Dues are certainly coming out, as might the other payroll-enabled donations such as the 'fair share hour' that some companies encourage employees to donate to United Way.

For those not familiar with the initial thread on the topic, a caution - This 'Front Loaded' method may delay any employer match once the OP has hit his limit. Most companies will offer a 'catch-up' deposit early the next year. A personal choice, in theory, the extra time invested with the $17.5K is worth it when compared to the company match delay.

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