I used to lurk and sometimes post on FWF from about 2004 to 2013. I’ve been here off and on since the demise of FW. It’s great to see some familiar faces.
This is kind of a long post so I will give a brief summary before I get into the details:
If my wife and I max out our 401k contributions at the beginning of the year, will the withholding from the rest of the year be enough to cover the taxes we will owe to the federal and state governments for 2019?
This year my wife and I are filling up our 401k’s as fast as possible thanks to a windfall from last year. Her match is based on annual salary and not on a per-paycheck basis, so we want to fill it up as soon as possible. I have no match.
The problem is that we are not really being taxed on our current earnings since our taxable amounts are too low. So far for this year we have only paid $150 to the federal government and $100 to the state. We have 2 exemptions each on our W4s. I’m wondering if our withholding will catch up once we’re done with our 401k contributions or if we need to adjust our withholding now and send estimated payments to the state.
For now we are being taxed as if we make next to nothing. I know that’s the point of pretax retirement savings, but it’s unnerving to be paying so little in taxes every two weeks. We’ve never made such large 401k contributions at once.
My wife’s income is temporarily low and will be increasing substantially well before the end of the year. My income is low and will likely decrease somewhat, though it’s possible that it may double (uncertainty due to returning to work after a long illness). My worry is that we won’t be taxed enough throughout the rest of the year to make up for what we’re not paying now.
I’ve already done some calculations and based on them will likely be submitting estimated income tax payments to the state just to avoid potential penalties. But I’m not sure if it’s completely necessary. I’ve spent hours running numbers on my own based on our taxes from last year. I’ve also been using paycheck calculators and tax estimators online. But every time I think I’ve got it figured out, I get a different result somewhere else. Most of the tools I’ve used assume you’re making regular 401k contributions and not larger amounts at the beginning of the year followed by none for the rest of the year.
Any thoughts from people who have done this before? In the past we have made regular 401k contributions throughout the year, so I wasn’t prepared for the tiny amount or complete lack of taxes we’d be paying right now.
As I mentioned above, my concern is that our increased withholding later on this year won’t be enough to cover the whole year’s taxes especially considering my wife’s income is going up.