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Assuming I want to direct more of my paycheck into 401k accounts (no outside contribution possible), is there a way to pay federal/state income tax, OASDI, and/or medicare taxes from my cash (non-paycheck) funds?

Is it possible to take additional deductions and pay estimated taxes ahead instead? What other approaches might exist for maximizing contributions?

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Your company will have a maximum percentage of your paycheck that can be directed to a 401K. This number is separate from the annual amount that can be deposited to either the Roth or pretax flavors of the 401K. If the percentage that the company allows is high enough, some people can make the entire year contribution in a few paychecks. Though in some case they could miss out on the entire company match.

Keeping those two limits (the per-check and the annual limit), if you are contributing pre-tax the more you contribute the less money from each paycheck will be withheld. Though the Social security and medicare number are not changed by the amount of your 401-K contributions.

To drive the withholding even lower you can bump up the the exemptions you claim via the numbers on your W-4. Upping that number will not lower your lower the Social security or medicare contribution.

As you noted if you claim enough exemptions you will lower the amount of Federal taxes withheld. The danger is that if you miss by too much, you will have a penalty to pay, plus you will have to fill out quarterly tax forms.

And that is what you must do. Each quarter you will have to make an estimate of what you are underpaying, and send additional funds to the IRS. The danger is that you must meet the deadlines, and they expect you to pay up each quarter.

Of course many people would just look into a IRA or Roth IRA after they make enough contributions to maximize the company match. Then once they know they will fill the IRA, they put additional money into their 401K.

Note: some places have a flavor of 401K that allows non-dedcutable non-Roth contributions.

  • Do the quarterly forms only have to be filled out if you're expecting to be under withheld for that quarter? So, for example, if in 2016, withholding is reset to the suggested levels, would I have to continue filing quarterly estimated taxes? – arcyqwerty Sep 11 '15 at 15:43
  • If you know that you will not be able to come close via withholding, and you won't make the safe harbor numbers, then you need to use the quarterly forms. If you are hit with under withholding one year, then they will require you to use the quarterly forms the next year. – mhoran_psprep Sep 11 '15 at 16:35
  • But if the quarterlies are filed appropriately and then withholding is sufficient next year, then no quarterlies need to be filed next year? – arcyqwerty Sep 11 '15 at 16:51
  • "... then they will require you to use the quarterly forms the next year." Is this really true? If the taxpayer is willing to pay the penalties for late payment as well as the interest (often the case when the late payment is relatively small), can the IRS still insist that a quarterly return of estimated taxes must be filed? i.e. mandatory filing and additional penalties if you don't file the 1040-ES? – Dilip Sarwate Sep 11 '15 at 21:21
  • @Dilip I agree; I've never seen anything except "you should consider increasing withholding or making estimated payments". However, if your W-4 leads to significant underwithholding consistently (about 2-3 years I think) they can require the employer to ignore your W-4 and withhold at a rate the IRS "locks". I think they use this only against people who both underwithhold and underpay, since from their point of view any form of payment is fine, withholding is just easier to enforce. – dave_thompson_085 Sep 15 '15 at 15:28

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