Help me make sense of income (A big Post)

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admisionquestion
Posts: 473
Joined: Sun Sep 26, 2010 12:16 am

Help me make sense of income (A big Post)

Postby admisionquestion » Sun Nov 13, 2011 11:36 pm

Hi,

I am a 0L who has never had a job that paid more than 12,000 a year (i.e. still a student). The prospects of making 160,000 are hard to fathom, and I could use some help digesting the numbers.

1) Can someone give me some basic rules to predict after tax income. Paycheckcity is a bit overwhelming but says that NYC 160,000 would leave me with 104,5000 after tax. They break down the 55 some G in taxes as follows:

Image

1a. Is the Federal Withholding constant regardless of where one lives--and what brackets/rates does it use?
1b. Are Social Security and Medicare constant regardless of where one lives--and what brackets/rates does it use?

2) Can someone explain to me how 401K's work. I get that you deduct a certain portion of your income as pre-tax and then can invest that money, and then it is taxed when you withdraw it.

2a. Generally how much can you put into a 401k?
2b. What sort of similar mechanisms exist and how do they differ?
2c. Can you withdraw at anytime (so long as you pay the taxes that year?)
2d. Can you invest the money anyway you see fit? What are the restrictions?
2e. Do most firms offer pensions/what exactly is a pension?

3) How are bonuses taxed (just like normal income?)

4) Is there current data somewhere on the typical lockstep rates/bonuses?

Any help on these questions would be greatly appreciated. I realize these are fairly ignorant questions but Id rather ask then not know!

Thanks

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IAFG
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Re: Help me make sense of income (A big Post)

Postby IAFG » Sun Nov 13, 2011 11:38 pm

Looks like you're missing city tax?

mrloblaw
Posts: 534
Joined: Fri Jul 22, 2011 3:00 pm

Re: Help me make sense of income (A big Post)

Postby mrloblaw » Sun Nov 13, 2011 11:42 pm

IAFG wrote:Looks like you're missing city tax?


+1. I can't find the spreadsheet I did several months ago, but I think it came down to more like 98k.

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NYC Law
Posts: 1569
Joined: Thu May 26, 2011 3:33 pm

Re: Help me make sense of income (A big Post)

Postby NYC Law » Sun Nov 13, 2011 11:53 pm

I'll knock out question 1 for ya.

(And there is city tax in NY, that's why it asks for your address, so it'll come out a little less than $104k
admisionquestion wrote:1a. Is the Federal Withholding constant regardless of where one lives--and what brackets/rates does it use?
Yes
http://lmgtfy.com/?q=federal+tax+brackets

1b. Are Social Security and Medicare constant regardless of where one lives--and what brackets/rates does it use?
Yes
http://lmgtfy.com/?q=Social+Security+an ... +Tax+Rates

Thanks

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dood
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Re: Help me make sense of income (A big Post)

Postby dood » Mon Nov 14, 2011 12:01 am

admisionquestion wrote:Hi,

2a. Generally how much can you put into a 401k?
as much as u want
2b. What sort of similar mechanisms exist and how do they differ?
wiki ira, roth ira specifically
2c. Can you withdraw at anytime (so long as you pay the taxes that year?)
yes, and the 10% penalty unless u qualify for exception (i.e., using cash out for continued education or buying home)
2d. Can you invest the money anyway you see fit? What are the restrictions?
usually a fiancial firm manages it. for example, fidelity managed my 401K at my old job. talking to friends, the fidelity 401K plan gave me more options as far as investing strategy, diversification, what more choices for funds to invest in. u can invest the money in all cash if u want - which i what i did when i saw the recession really starting to sink (i still wanted to contribute in order to get the company match).
2e. Do most firms offer pensions/what exactly is a pension?
pure money that your company pays u after retirement. i.e., company will pay you $2000/mo if u retire after giving the company 20 years. usually doesnt vest until u work for set number of years, i.e., 5, and then more years u give, more pension u get.
3) How are bonuses taxed (just like normal income?)
depends. google ur question. mine were at least initially taxed at very high rates, i believe around 40%.

bdubs
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Joined: Sat Feb 06, 2010 2:23 pm

Re: Help me make sense of income (A big Post)

Postby bdubs » Mon Nov 14, 2011 12:14 am

admisionquestion wrote:
1a. Is the Federal Withholding constant regardless of where one lives--and what brackets/rates does it use?
Federal witholding is done by your paycheck processor and generally is done by annualizing your paycheck to withold approximately the amount you will owe. Your withholding for bonuses will be different.
1b. Are Social Security and Medicare constant regardless of where one lives--and what brackets/rates does it use?
Social security has a cap. Medicare has no cap. There are no "brackets" for payroll taxes.

2) Can someone explain to me how 401K's work. I get that you deduct a certain portion of your income as pre-tax and then can invest that money, and then it is taxed when you withdraw it.
Yep, you've got it.

2a. Generally how much can you put into a 401k?
$16,500 for 2011, but it will go up by the time you start working
http://www.irs.gov/retirement/participa ... 86,00.html


2b. What sort of similar mechanisms exist and how do they differ?
401k will probably be your only option because your AGI will be above IRA contribution limits.

2c. Can you withdraw at anytime (so long as you pay the taxes that year?)
No, you pay a penalty for early withdrawls from a 401k.

2d. Can you invest the money anyway you see fit? What are the restrictions?
You generally have to invest in marketable securities of some sort. While you work for your firm, you will have to use their 401k manager. Once you leave you can roll over in to any IRA provider you want.

2e. Do most firms offer pensions/what exactly is a pension?
Not any more. A pension is a private retirement plan where you contribute to a fund managed by the firm. Pensions are usually "defined benefit" funds, which means that they pay a fixed amount to all participants. 401ks are "defined contribution funds", meaning you get out some function of what you put in. Some firms have something like a pension for equity partners, but they have fallen out of favor as firms realize they are extremely costly to maintain.

3) How are bonuses taxed (just like normal income?)
Yes, but witholding is calculated differently.

4) Is there current data somewhere on the typical lockstep rates/bonuses?
careers.abovethelaw.com

Any help on these questions would be greatly appreciated. I realize these are fairly ignorant questions but Id rather ask then not know!

Thanks
Last edited by bdubs on Mon Nov 14, 2011 12:25 am, edited 1 time in total.

admisionquestion
Posts: 473
Joined: Sun Sep 26, 2010 12:16 am

Re: Help me make sense of income (A big Post)

Postby admisionquestion » Mon Nov 14, 2011 12:22 am

Thanks everyone, Especially BDUBs.




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