Friday, December 17, 2010

The 1-Year FICA Cut and 401(k) Plans

Every working American subject to FICA taxes will see a pay increase in 2011 of 2% of pay up to a maximum savings of $2,136. For those who have not been saving enough in their 401(k), I am going to suggest that they increase their rate of deferral to that plan. It doesn't matter from a FICA standpoint whether you put that money in as pre-tax, Roth, or after-tax, as money put into a 401(k) plan by an employee is FICA taxable.

Suppose employees choose to contribute more. Then, employer matching contributions will increase. Are companies budgeting for this? Are they even thinking about it?

This all goes back to risk management. Is this a risk that has been considered? Where will the money come from?

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