Pre-Tax Shelters

Hello All,

I am fortunate, in that, I will be receiving a substantial and unexpected bonus from my Company very shortly. But the thought of paying a third of it in taxes is a tough pill to swallow.

Does anyone know of any pre-tax vehicles that would help me shelter this income???

Thanks so much - Kevin

Krp,

Congratulations!

Will you really be paying 1/3 of the bonus in taxes, or are you talking about having 1/3 withheld for tax purposes?
I suspect it is the latter.

You have completed a W-4 for withholding purposes. Your W-4 and the amount that is recorded on your pay stub each pay day determines how much is withheld. When your pay increases, your withholding increases. Typically the bonus is added to your pay for one pay day making the withholding for that pay day extra large.

At the end of the year when you receive your W-2 and prepare your tax return, it is likely some of that withholding will be returned to you.

In the scienario you give, you receive 2/3 of the bonus. Tax sheltering this is possible by investing in an IRA, 401k type plans. You could also purchase an annuity. These plans will only give you tax deferred growth on your 2/3 of the bonus.

And before you purchase the annuity, do some reading:
http://www.sec.gov/cgi-bin/txt-srch-sec?text=annuity&section=Investor+Information&x=5&y=9