Pre-Tax is always going to be the best option unless your employer coverage doesn't meet minimum essential coverage or pass affordability guidelines. Then it depends on your income level and if you qualify for a subsidy. For the majority of people, pre-tax wins without question.
Unless you make very little money, you always want some pre tax, because the first 12k income is tax free (standard deduction), and the next couple tax brackets are small, so you should always be pulling pre tax money until you start hitting the higher tax brackets, at which point you'd pull from your Roth.
Pre-tax contributions can reduce your overall tax burden now, but post-tax benefits can result in tax savings in the future. By working with a tax advisor and staying up to date on pre and post-tax benefits, common deductions, and your state and local taxation laws, you will save time and future headaches.
Payroll deductions made before taxes are taken out (aka pre-tax deductions) have the advantage of reducing your taxable income, while those made after taxes (aka post-tax deductions) don't. Post-tax deductions, though, may still have other advantages.
Pretax (sometimes called “traditional”) contributions come out of your paycheck before your taxes are calculated and deducted. This may mean that you pay less in taxes while you are working because your contributions lower the amount of income on which you owe taxes.
If you expect to owe more than $1,000 in taxes, then you might be a candidate for estimated taxes. Depending on your job, business entity and income, making quarterly payments makes the most financial sense. These are the cases where that might be best — as long as you expect to owe $1,000 or more in taxes.
Key Takeaways
One of the most common reasons to file taxes early is to receive a tax refund sooner. E-filing will enable you to receive your refund even more quickly. If you owe tax, filing early will give you time to prepare for your tax payment, since you don't have to pay the taxes you owe until the filing deadline.
Pre-tax deductions are beneficial to most employees and employers. Using a pre-tax deduction plan allows employees to get coverages and perks like medical care and life insurance before their gross income is taxed. This reduces the employee's tax burden and usually saves them money over time.
Gross pay is the total amount of money an employee receives before taxes and deductions are taken out. For example, when an employer pays you an annual salary of $40,000 per year, this means you have earned $40,000 in gross pay. Your gross pay will often appear as the highest number you see on your pay statement.
Our guideline: Aim to save at least 15% of your pre-tax income1 each year, which includes any employer match. That's assuming you save for retirement from age 25 to age 67. Together with other steps, that should help ensure you have enough income to maintain your current lifestyle in retirement.
Calculate your after-tax income
If you contribute to a pre-tax workplace retirement plan, or you have money deducted from each paycheck to pay for benefits like health insurance, add those amounts back in before calculating your monthly take-home pay. Those are fixed expenses that you'll want to account for.
Contributing from your before-tax salary reduces your taxable income, and potentially how much tax you pay. Making regular contributions to your super over time can make a big difference to your super balance. Automatic and regular contributions let your super grow without having to think about it.
However, while pre-tax contributions lower your taxable income now, you'll owe taxes on these funds when you withdraw them in retirement. On the other hand, post-tax deductions do not lower your taxable income upfront, but the funds you contribute grow tax-free, and qualified withdrawals are also tax-free.
For some reason, you may need to refund an employee's medical contributions. This may happen, for instance, if she stopped her medical coverage, but you did not stop her deductions in the payroll system. When you refund a pretax deduction, the money loses its tax advantage.
Is voluntary life insurance taxable? Most employers set up premium payments for a voluntary policy to come directly from an employee's paycheck, so it's often paid with pre-tax dollars. However, if you pay it with after-tax dollars, the premium costs may be tax-deductible — speak with a tax professional to make sure.
Pretax contributions can save them considerable money compared to what they would pay for benefits and other services post-tax. The savings, however, are not limitless. There are usually caps on how much employees can contribute on a pretax basis.
The standard deduction for 2024 is: $14,600 for single or married filing separately. $29,200 for married couples filing jointly or qualifying surviving spouse. $21,900 for head of household.
Try to estimate which one best reflects your present and future tax situation. If you expect your tax bracket to increase, the Roth contribution option will clearly make more financial sense. If you predict the reverse, pretax contributions will benefit you more in the long run.
Giving yourself that extra time to file helps you avoid the need to file a tax extension and gives you a better chance at filing a more complete tax return (which could lead to a bigger tax refund!).
Do You Have to File Taxes If You Made Less than $5,000? Typically, if a filer files less than $5,000 per year, they don't need to do any filing for the IRS. Your employment status can also be used to determine if you're making less than $5,000.
For most, the best choice is to file taxes early — or at least as soon as you can. This way: The IRS may process your return and agree on your tax liability sooner. You will know sooner if you owe and have more time to save money.
If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a safety net.