Why 401(k) Contributions Are Powerful for NY Taxpayers

If you live in New York, especially NYC, you face some of the highest combined tax rates in the country. Contributing to a traditional 401(k) provides immediate tax relief at both the federal AND state level.

2024 401(k) Contribution Limits

Age	Maximum Contribution

Under 50

$23,000

50 and older

$30,500 (includes $7,500 catch-up)

The NY Tax Advantage

Every dollar you contribute to a traditional 401(k) reduces your taxable income. For an NYC resident in the 22% federal bracket, 6% NY State bracket, and 3.8% NYC bracket, maxing out your 401(k) saves:

$23,000 contribution × 31.8% combined marginal rate = $7,314 in annual tax savings

That's over $600 per month in reduced taxes!

How It Works: Before and After

Example: $100,000 Income, NYC Resident, Single

Without 401(k) Contributions:

Taxable income: $100,000

Total income taxes: ~$29,884

Take-home pay: $70,116

With $23,000 401(k) Contribution:

Taxable income: $77,000

Total income taxes: ~$22,570

401(k) saved: $23,000

Cash take-home pay: $54,430

Total wealth building: $77,430

You reduce taxes by $7,314 while building $23,000 in retirement savings!

Strategies to Maximize Your 401(k)

1. Contribute At Least to the Match

Most employers match a percentage of your contributions (often 3-6%). This is free money—never leave it on the table.

2. Front-Load If Possible

If your budget allows, maximize contributions early in the year. This gives your money more time to grow tax-free.

3. Consider the Mega Backdoor Roth

Some 401(k) plans allow after-tax contributions that can be converted to Roth. The total 401(k) limit (including employer contributions) is $69,000 in 2024.

4. Coordinate with IRA Contributions

You can contribute to both a 401(k) and an IRA. For 2024, IRA limits are $7,000 ($8,000 if 50+).

Traditional vs. Roth 401(k)

Many employers now offer Roth 401(k) options. Here's how to decide:

Choose Traditional 401(k) if:

You're in a high tax bracket now

You expect lower income in retirement

You want the immediate NY tax savings

Choose Roth 401(k) if:

You expect higher taxes in retirement

You're younger with lower current income

You want tax-free withdrawals later

For most high-earning NYCers, traditional makes sense due to the high current tax rates.

The NY 529 Plan Bonus

After maxing your 401(k), consider NY's 529 plan for additional state tax savings. You can deduct up to $5,000 ($10,000 married) from NY taxable income.

Common Mistakes to Avoid

Not contributing enough to get the full match - This is leaving free money behind

Withdrawing early - 10% penalty plus all taxes become due

Forgetting to update beneficiaries - Keep these current

Not increasing contributions with raises - Boost your percentage when income grows

Action Steps

Log into your 401(k) provider

Increase your contribution percentage

Aim to max out ($23,000 or $30,500 if 50+)

Use our [calculator](/) to see your new take-home pay

The immediate tax savings make a 401(k) one of the best financial moves for any NY taxpayer.

How to Maximize Your 401(k) Tax Benefits in NY