By now you’ve heard the news from the 2010 Tax Act – one of the provisions is that during calendar year 2011, the Social Security withholding tax is reduced from 6.2% to 4.2%. This means that you have an additional 2% of your income, up to the $106,800 limit, available to you to do with as you wish. This is your opportunity to make a splash!
I think it would be a very good idea to bump up your 401(k) deferral by 2% if you aren’t already maxed out. If you have maxed out your 401(k), you could use the extra money to contribute to your Roth IRA, or put some money into your taxable investment account. No matter what, since this money was originally intended to be for retirement (if it had been withheld for Social Security, it would have gone to *someone’s* retirement), you should put it toward some variety of savings or debt paydown.
It’s not often that you get the opportunity to take control of your Social Security withholding, and many folks are chomping at the bit to do just that.
Don’t waste your opportunity – this is the chance you’ve been waiting for!