Your Taxes: The tax men taketh away, but giveth some back

December 5, 2007

It's not too late to fully fund your 401(k), Roth, or other retirement accounts for 2007. If you're a procrastinator, a recent T. Rowe Price analysis drives home the importance of making those deferrals as early in your career as possible.

The amount of earnings you'll pay Social Security tax on in 2008 will rise to $102,000, from $97,500 this year. That means you could pay almost $350 more into the Social Security trust fund if you're an employee, or nearly $700 more if you're self-employed. To help offset that tax, you'll be able to shelter a total of $46,000 in pretax earnings in your defined contribution retirement plans next year, a full $1,000 more than in 2007. In addition, you may be able to sock away more in a Roth IRA next year. The income level over which the maximum allowed contribution begins to phase out is rising from $156,000 to $159,000 for married taxpayers filing jointly, and from $99,000 to $101,000 for all others.